By Dana Cimilluca And Gillian Tan
Goldman Sachs Group Inc. has cemented its position as the top
Wall Street bank for mergers and acquisitions in one of the busiest
years in the business.
The New York bank, whose name is synonymous with deal making,
this week landed roles on two big acquisitions worth a combined
$100 billion: Actavis PLC's $66 billion agreement to buy Allergan
Inc. and Halliburton Co.'s $34.6 billion planned purchase of Baker
Hughes Inc.
The deals will help the Wall Street firm widen its lead in the
lucrative and competitive merger business over perennial rival
Morgan Stanley, which isn't involved in either transaction. It will
also secure for Goldman a significant chunk of the advisory-fee
bonanza the two takeovers are expected to generate. Research firm
Dealogic estimates those fees could add up to as much as $300
million for the banks.
Goldman's surge comes at an opportune time. Companies are
striking deals at a pace unseen since the onset of the financial
crisis. The Allergan and Baker Hughes deals brought the total value
of mergers struck world-wide this year to $3.1 trillion, more than
in any full year since 2007. Goldman this year has reaped $1.7
billion from advising on deals at a time when other Wall Street
businesses, such as bond trading, are sputtering.
It also shows that, after years of turmoil and upheaval on Wall
Street, some things, such Goldman's dominant position in deals,
haven't changed much. Goldman has advised this year on $935 billion
of merger-and-acquisition announcements and proposals
world-wide.
Bank of America Corp. also landed a role on both deals. The
mergers were both announced Monday, one of the biggest days for
deals in years.
The sheer size of the takeovers underscored the strength of the
merger market, which came to life earlier this year after a
prolonged period in the doldrums following the financial crisis.
Some bankers and lawyers were concerned that a bout of market
volatility in October would bring the surge to an end, but Monday's
developments, which followed a snapback in the stock market, put
those fears to rest.
To be sure, banks typically get the bulk of their merger fees
once deals close, and there is no guarantee that either of Monday's
marriages will come to fruition. There is a chance that antitrust
regulators could reject Halliburton's planned purchase of Baker
Hughes, the second- and third-largest oil-field-services companies
in the world, respectively, analysts said.
Not everyone was in a position to celebrate Monday.
In sealing an agreement with Allergan, Actavis appears to have
won a takeover tussle for the Botox maker with Valeant
Pharmaceuticals International Inc., which had launched a hostile
bid for the company earlier this year in tandem with activist
investor William Ackman. Morgan Stanley, after seeking
unsuccessfully to advise Allergan, landed a role with Valeant. With
Valeant signaling that it is unlikely to press its offer, Morgan
Stanley is likely to miss out on fees and credit for advising on
the purchase of Allergan, the biggest deal of the year so far.
Removing Valeant-Allergan from consideration, Morgan Stanley
would fall to No. 3 behind J.P. Morgan Chase & Co. in the
rankings of advisers on announced takeover deals world-wide,
according to Dealogic.
The divergent fortunes this week of Goldman and Morgan Stanley
show both the risks and rewards of the highly lucrative but also
hit-or-miss deals business. In addition to advisory fees, companies
doing takeover deals often pay banks even more for loans to fund
them. Wall Street firms also see merger and acquisitions as a
powerful brand builder that can lead to other business such as bond
underwriting and risk-management services.
In addition to Morgan Stanley, Royal Bank of Canada and Barclays
PLC had lined up with Valeant. They were among seven firms that
stood to earn more than $500 million from providing the drug maker
with more than $20 billion to finance its intended stock-and-cash
acquisition of Allergan, according to people familiar with the
matter. Barclays and RBC were each set to provide 23% of the total
debt package, with each of the five others providing 10.8%,
according to filings.
The bank that will likely get a large share of financing fees
for a takeover of Allergan instead is J.P. Morgan, which is helping
fund the roughly 60% of the deal that will be paid for with cash,
according to a statement from Actavis on Monday. The Wall Street
bank is also Actavis's sole adviser on the transaction.
J.P. Morgan, Goldman and Bank of America are expected to share
fees of between $160 million and $180 million for advising on the
deal, according to SHYDealogic estimates. If Goldman's payday in
another recent deal that shares some characteristics with
Actavis-Allergan is any guide, it could be set for an outsize
payday for its work for Allergan.
Goldman is set to earn more than $47 million for advising Tibco
Software Inc. on its pending $4 billion sale to Vista Equity
Partners, according to a securities filing. Goldman helped defend
Tibco against a shareholder activist and ran an auction for the
software maker.
The other big winner from Monday's deal-making binge: Credit
Suisse Group AG, which was the lead financial adviser to
Halliburton on a deal that Dealogic estimates will generate fees of
$100 million to $120 million.
Credit Suisse also took the unusual step of advising Mr. Ackman
on Valeant's bid for Allergan. While Valeant is likely to walk away
from Allergan, Mr. Ackman's Pershing Square Capital Management LP
made more than $2 billion on paper on its nearly 10% Allergan
stake. It isn't clear what compensation agreement Credit Suisse
struck with Pershing Square.
Write to Dana Cimilluca at dana.cimilluca@wsj.com and Gillian
Tan at gillian.tan@wsj.com
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