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'No deal!': Did Brexit kill these major UK takeovers?

Andrew Woodman

A favorite mantra among hardliners discussing the UK's future trading relationship with the EU is "no deal is better than a bad deal." Prime Minister Boris Johnson has made a no-deal scenario more likely than ever by confirming plans to suspend parliament. In the meantime, plenty of other deals—specifically, M&A deals involving UK targets—have met an untimely demise. And in many cases, Brexit has been blamed. 



The reality is complex, and for UK's M&A market, Brexit has been something of a double-edged sword. Yes, the diminished pound has made foreign investors salivate at the prospect of a bargain—as was demonstrated in

Li Ka-Shing's Greene King purchase—but it has also created uncertainty, forcing both foreign and domestic buyers to delay or cancel decisions.  



Failed deals can occur due to a combination of factors. That said, it is hard to ignore the uptick in scuppered transactions, with more than 200 M&A deals stalled since the referendum was held on June 23, 2016, per PitchBook data. Is Brexit to blame? Here are some of the standout post-Brexit merger upsets and the real reasons behind them.   Kraft Heinz's Unilever deal gets canned (Deal size: $143B)  The biggest of the bunch, this deal is also the biggest red herring. A look at the combined value of failed and canceled UK M&A deals—some €204 billion (around $225.6 billion) worth of deals in 2017 compared to €73 billion (around $80.7 billion) the year before—gives the illusion of a massive spike. But it is

Kraft Heinz's failed $143 billion acquisition of

Unilever in early 2017 that is really moving the needle. 



Unilever's stakeholders did not take kindly to the "friendly" takeover bid, in part due to a massive clash of cultures. The mean and lean business approach of Kraft Heinz—backed by

Warren Buffet and private equity firm

3G—was said to be at odds with Unilever's reputed emphasis on corporate social responsibility. No one blamed Brexit. Unilever's subsequent efforts to move the company's headquarters from London to the Netherlands, however, are another matter.   



Blame Brexit? No.  LSE's cross-border bourse buyout (Deal size: €29B)

Deutsche

Börse's proposed takeover of its UK counterpart, the

London Stock Exchange Group, was a deal that had

been in the works for years, as the German bourse had already made two approaches in 2000 and 2004. With the announcement of a €29 billion merger in 2016, it looked like it had finally clinched a deal. But the British electorate had other ideas. After the vote, it was clear the deal was untenable. 



Senior German politician Thorsten Schäfer-Gümbel proclaimed that the merger was already "dead," according to The Guardian, but some politicans reportedly clung to the hope that it could go ahead if the target relocated to Frankfurt. If Brexit hadn't killed the deal already, EU regulators landed the final blow in spring 2017, decisively blocking the merger on the grounds that it would have formed a "de facto monopoly" for certain financial services.



Blame Brexit? Yes.  Asda and Sainsbury's supermarket sweep (Deal size: £7.3B) While UK supermarket giants

Asda and

Sainsbury's have reportedly both attributed business struggles to Brexit—with each said to be blaming the upcoming divorce for falling profits and expected food shortages—it was not a factor in their failed merger earlier this year. The deal would have combined Sainsbury's and

Walmart-owned Asda to make a market-leading behemoth for a reported price of £7.3 billion (around $8.9 billion at today's conversion rate).  



UK regulators, which some have argued have been more heavy-handed in the wake of Brexit, were not impressed. The Competition and Markets Authority ruled in April that UK shoppers and motorists would be "worse off" if the two businesses combined, leading to price increases and reductions in quality and product availability. So, it blocked the deal. 



Blame Brexit? Not directly.  Intu's second jilting by jittering investors (Deal size: £2.9B) Poor

Intu Properties. The shopping center company was left unloved by investors twice in a single year. First, rival

Hammerson walked away from a £3.4 billion deal in April 2018 citing a collapse in the UK retail market. Just months later in November, a consortium led by

The Peel Group,

Brookfield Asset Management and the

Olayan Group dropped a reported £2.9 billion buyout. This time it was clear why. 



While the investors were a little less candid about their reasons, citing "uncertainty around current macroeconomic conditions and the potential near-term volatility across markets," David Fischel, the chief executive of Intu, was more direct. According to The Guardian, he said: "There is only one reason this deal was called off and that was Brexit," adding that when former Prime Minister Theresa May's Brexit plan was revealed in November last year, "all hell broke loose."



Blame Brexit? Absolutely, yes. 



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