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Insurance industry

Wall Street's Fall Threatens Big Deals

Strategic Insights

— 1 min read

As the global stock market continues to decline, numerous high-stakes merger deals are facing scrutiny and potential collapse. With share prices plummeting, arbitrageurs are targeting vulnerable multi-billion-dollar deals, and the first major US merger to falter has been the $7 billion acquisition of Ciena by Tellabs. Meanwhile, the $50 billion merger between Citicorp and Travelers Group remains uncertain, with its closing date pushed back indefinitely, and the $32 billion takeover of TCI by AT&T also faces opposition from shareholders.

Key Takeaways:

  • The first major US merger to fall apart is the $7 billion acquisition of Ciena by Tellabs, which was scrapped due to Ciena's shares falling 75% and Tellabs's 30% decline in the three months since their link-up was announced.
  • The $50 billion merger between Citicorp and Travelers Group is still uncertain, with Citicorp's shares falling over 40% since their July peak and Travelers's offer price now being 6-10% less than Citicorp's market value.
  • The $32 billion takeover of TCI by AT&T faces significant opposition from shareholders, with TCI shares falling much faster than AT&T shares, creating a 12% spread between TCI's market value and the offer price.
  • Arbitrageurs are targeting risky billion-dollar deals announced before the stock market plunge, taking advantage of the significant value disparity between companies.
  • Jamie Dimon, co-executive chairman of Salomon Smith Barney, has publicly committed to the Citicorp and Travelers Group merger, despite technical difficulties.
  • The spread between TCI's market value and the offer price is now 12%, making it an attractive target for arbitrageurs.

Statistics:

  • Ciena's shares fell 75% in the three months since its acquisition by Tellabs was announced.
  • Tellabs declined 30% in the same period.
  • Citicorp's shares fell over 40% since their July peak.
  • Travelers Group's offer price is now 6-10% less than Citicorp's market value.
  • TCI's shares have been falling much faster than AT&T shares in recent weeks, creating a 12% spread between TCI's market value and the offer price.
  • The $32 billion takeover of TCI by AT&T is the biggest target for arbitrageurs.

Sources:

  • The Times, 1998 (Copyright (C) The Times)

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