The 80s were famous for outrageous business deals. Huge leveraged buyouts made millions for Wall Street’s wheelers and dealers, who went into massive debt to buy profitable companies and then stripped them down like stolen cars and sold them for parts. These transactions often had massive effects on the companies involved, frequently resulting in firm restructuring, layoffs and bankruptcies. The personalities behind the deals were often so over-the-top that they served as the real-life inspiration for memorable Hollywood characters like Gordon Gecko and Larry the Liquidator.
Then, after the prices got too high and the bankruptcies too frequent, the buyout frenzy calmed some. It would take almost 20 years for America’s movers and shakers to top the $25 billion buyout of RJR Nabisco in 1988.
Cut to today, and buyouts are back in a big way. The year 2013 was full of big-ticket mergers and acquisitions, with many of the deals involving billions of dollars exchanging hands. Often, these merger and acquisition deals don’t mean a lot to the average person; one company might lose money, another might gain money, and everything carries on pretty much as it was.
But sometimes these deals have greater importance. A company might have properties that complement a product or service it acquires, and will combine them for greater value to its customers. Or it will just use its larger market presence to force consumers into paying it more money. Last year, some big ticket buyouts went through that could have a very real effect on how you and I live our lives.
Here are five of the biggest mergers of 2013.
5 #5 American Airlines Buys US Airways
Price tag: $11 billion
Two years after filing for bankruptcy protection, American Airlines pulled off one of the biggest mergers of 2013, combining with US Airways to form the world’s largest airline. Combining forces means that American Airlines now has enough clout to compete with US competitors Delta and United Continental in the domestic market. It would be easy to think that more planes and more resources would be a good thing for the average traveler, but that may not necessarily be the case.
Shortly after the merger was announced the US Department of Justice filed a lawsuit to block the deal, claiming that the union of the two companies would mean higher airfares and reduced services for customers. The Department of Justice only backed off after the two companies agreed that as part of the deal they would give up some of their slots and gates at major US airports to make way for low-cost carriers like Jet Blue. This would, the DoJ stated, help to maintain competitive pricing.
However, this plan seems to have backfired. On January 15th American Airlines announced that, in compliance to the DoJ’s demands, it would end service to 17 small to mid-sized cities. Critics of the plan say that low-cost carriers need the volume that can only be found on major routes and, therefore, won’t be interested in picking up the routes American Airlines has cut, meaning smaller communities will lose access to service. You can expect a similar strategy at the other six airports where American Airlines has to reduce service. As a result of the merger and subsequent legal action, you may have to pay more for your next plane ticket.
4 #4 Comcast Buys NBC Universal Media
Price tag: $17 billion
The Comcast buyout of NBC Universal Media took so long that it practically became a running joke. Though the deal began in 2009, it took five years for Comcast to allay the fears of the Federal Communications Commission and acquire the final shares from part-owner General Electric. In the early stages of the merger, critics claimed that Comcast’s role as both content provider and internet service provider would lead to an infringement of its clients’ rights in the name of copyright protection and promoting the content it was creating over that of its competitors. Others said that the deal would affect the availability of NBC content to people subscribed to rival internet providers.
Responding to fears surrounding the merger of Comcast and NBC Universal Media, the FCC required both companies to introduced provisions it claimed would protect net neutrality and open access to NBC programming before it would sanction the deal. Comcast also agreed that, as part of the deal, it would give up its share of management control over the online video service, Hulu. Naysayers remain skeptical as to Comcast’s good faith.
Accusations have already surfaced that Comcast is throttling its users’ access to Netflix and other streaming video competitors. On January 17, the United States Court of Appeal struck down the net neutrality provisions the FCC established for internet providers in 2010, theoretically making Comcast’s behaviour legal, leaving them free to charge users more for the speed of their service and access to certain kinds of media. The combination of these factors could mean higher internet bills or slower service in your future.
3 #3 Liberty Global Buys Virgin Media
Price tag: $23 billion
The high-priced merger of these two media giants makes Liberty Global one of the largest international telecommunications companies in the world. This could be excellent news for UK customers. Insiders expect savings for customers as the now-larger telecom giant uses Virgin Media’s extensive wireless network to improve service and coverage and offer bundling discounts. Both companies have announced an expected $180 million worth of savings as they eliminate redundancies in their infrastructure, savings that could be passed along to customers. Liberty Global has a solid foothold in continental Europe, so UK customers may be in for even better service when travelling abroad.
And now for the downside: if you don’t like Rupert Murdoch and the implications of a giant multi-national mass media empire being run by one man with an iron fist, you may not like the way John Malone runs the new bigger, badder Liberty Global. At times dubbed Rupert Murdoch’s frenemy and once referred to as “Darth Vader” by Al Gore, Malone has a reputation for introducing strange ownership arrangements into the public companies that he runs, effectively cutting the opinions of his public shareholders out of the picture. You may like the 120Mbps streaming rate Liberty promises to its customers, but you may not like the lack of public input into a supposedly public company as Malone uses Liberty Global to square off against Murdoch’s UK TV provider, the British Sky Broadcasting Group.
2 #2 Dell Goes Private
Price tag: $24.4 billion
In what’s been tagged one of the nastiest tech buyouts ever, Dell CEO and founder Michael Dell fought off hedge-fund manager Carl Icahn to buy out all public shares in the Dell company, taking it private once more. The move means some important changes for the company. No longer beholden to shareholders, Dell management is now free to cut, slash and remodel as it sees fit.
CEO Dell has been talking about big changes to the company’s focus, moving away from made-to-order personal computers and into corporate services - it’s possible Dell and its “private cloud” may be running your banking services in the future. However, the most important consequence of this deal may not be the changes to the company itself, but the impression it leaves on the tech industry.
There’s no doubt that Dell was struggling before the buyout. If going private allows this flagging company to do what it needs to do to compete and turn things around, more tech companies may follow suit, buying out their shares or never making a public offer at all. Private companies are not required to report their incomes and are not answerable to the public for decisions they want to make. If Dell’s remodel works and serves as an example for others, you and I may lose (the little) say we have in how the tech ecosystem develops.
1 #1 Verizon Buys Shares Back From Vodafone
Price Tag: $130 billion
Good news for some, the USA’s largest wireless provider will soon be 100 percent American again. After negotiating the third largest buyout in history, Verizon will buy back its shares from Britain-based multinational telecom company Vodafone, for a tidy $130 billion. This could be good news for US wireless clients, as Verizon will no longer have to pay dividends to its British partner, and can now invest its profits into the modernization of its US operation.
CEOs at Verizon have been talking network upgrades and the acquisition of precious wireless spectrum that will allow the company to offer improved service. On the other hand, there is cause for concern. Verizon will walk away from this deal $116 billion in debt, leaving them vulnerable to the competition and requiring that the company deleverage, or cut outstanding debt, extremely quickly. If the company is determined to hold onto and expand its services in the US by investing in infrastructure, that means the money will have to come from somewhere else.
For those Americans who were hoping that Verizon, providing some of the most consistent service and best coverage in the US market, would start cutting its prices to compete with its competitors, you probably aren’t going to get your wish. In the face of $116 billion in debt, Verizon’s service is likely to remain the most expensive in the US. For those Canadians who were hoping that Verizon was just playing coy when it claimed to no longer be interested in Canada’s wireless market, there’s likely further disappointment ahead.