Frozen M&A Market Due to COVID-19... Xerox Abandons Hostile Takeover of HP

[Image source=AP Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] The merger and acquisition (M&A) market froze in the first quarter of this year as uncertainty expanded due to the spread of the novel coronavirus infection (COVID-19). In a situation where the possibility of a global economic slowdown has increased due to COVID-19, companies have shifted to securing cash and observing market conditions rather than boldly pursuing corporate acquisitions.

According to a report by the Wall Street Journal (WSJ) on the 31st of last month (local time), citing data from market information firm Dealogic, the scale of M&A transactions in the global market in the first quarter of this year was about $571.77 billion (approximately 700 trillion won), down about 33% compared to the same period last year. Among these, M&A transactions in the United States amounted to about $200.16 billion, more than halving compared to the first quarter of last year.

This decline in M&A is a consequence of the impact of COVID-19. In the last week of February alone, the global M&A volume reached $78.34 billion, but transactions sharply decreased from the latter half of last month, dropping to $15.45 billion and $2.32 billion in the third and last weeks of last month, respectively.

Even if corporate leaders have the will to pursue M&A immediately, COVID-19 has become a new barrier. Especially as banks are focusing on loan issues for households and companies, and the stock market is experiencing rollercoaster fluctuations, it is difficult to set prices or hold face-to-face meetings necessary for confidentiality.

For example, on this day, copier and printer manufacturer Xerox decided to halt its hostile takeover of PC company HP, which it had been pursuing. Xerox stated in a press release, "We have determined that the overall environment, including market turmoil triggered by COVID-19 and macroeconomic uncertainty, is not productive for continuing the HP acquisition." Accordingly, Xerox will not nominate candidates for HP's board of directors and has withdrawn its acquisition proposal.

Earlier last month, Xerox proposed a hostile M&A offer to HP investors, including $18.40 per share and 0.149 shares, totaling about $24 in cash and stock, which HP rejected. The merger between the two companies had been ongoing for over 11 months since last year, led by American billionaire investor Carl Icahn, who also engaged in a management rights dispute with Korea's KT&G in 2006.

If such M&A deals fail to materialize, the repercussions are likely to affect Wall Street investment banks as well. The revenues of investment banks, which play a significant role in M&A processes, will decrease accordingly. Last year, Goldman Sachs' revenue from M&A and initial public offerings (IPO) accounted for 20% of its total revenue. Jim Woolley, head of M&A and corporate governance at King & Spalding, forecasted, "At this point, cash is scarce," adding, "Companies will not proceed with traditional mergers until a certain level of profit is clearly expected."

This content was produced with the assistance of AI translation services.