international m&a subcommittee meeting · 3 duff & phelps 529 4 bank of america merrill...

American Bar Association

OFFICIAL TITLE: IMPACT OF THE TRUMP ADMINISTRATION

UNOFFICIAL TITLE: MAKE MERGERS GREAT AGAIN!

January 28, 2017 | Confidential

International M&A Subcommittee Meeting

January 28, 2017 | Impact of the Trump Administration January 28, 2017 | Impact of the Trump Administration

Panel

Gary McSharry – Corporate M&A Partner, McCann FitzGerald, New York

Jennifer Muller – MD, Houlihan Lokey, San Francisco

Brian McCarthy - M&A Partner & Head of L.A. Office, Skadden Arps

Larry Stein - Tax Partner & former Head of Global Tax Group, Latham & Watkins, L.A.


Agenda

Introduction – Gary McSharry

Market Reactions & M&A Statistics – Jennifer Muller

Proposed Tax Reform and its Impact - Larry Stein

Proposed Regulatory Reform and its Impact – Brian McCarthy

Q&A

American Bar Association

International M&A Subcommittee I M PAC T O F T H E T R U M P AD M I N I S T R AT I O N

J A N U A R Y 2 8 , 2 0 1 7 | C O N F I D E N T I A L

Table of Contents

2

Page

1. Introduction 3

2. Market Reactions 8

3. Industry Winners and Losers 14

4. M&A Statistics 17

5. Disclaimer 25

Introduction 3




5. Disclaimer 25

Corporate Finance Financial Restructuring Financial Advisory

No. 1 U.S. M&A Advisor

Top 10 Global M&A Advisor

Leading Capital Markets Advisor

No. 1 Global M&A Fairness Opinion

Advisor

1,000+ Annual Valuation

Engagements

No. 1 Global Restructuring Advisor

1,000+ Transactions / Valued Over

$1.5 Trillion

Houlihan Lokey is the trusted advisor to more top decision

makers than any other independent global investment bank.

2015 M&A Advisory Rankings

All U.S. Transactions

Advisor Deals

1 Houlihan Lokey 185

2 Goldman Sachs & Co 174

3 JP Morgan 141

4 Morgan Stanley 129

5 Bank of America Merrill Lynch 115

Source: Thomson Reuters

2015 Global Distressed Debt & Bankruptcy

Restructuring Rankings

Advisor Deals

1 Houlihan Lokey 50

2 Lazard 35

3 Moelis & Co. 26

4 Rothschild 17

5 PJT Partners LP 16

Source: Thomson Reuters

2001 to 2015 Global M&A Fairness

Advisory Rankings

Advisor Deals

1 Houlihan Lokey 789

2 JP Morgan 732

3 Duff & Phelps 529

4 Bank of America Merrill Lynch 488

5 Morgan Stanley 481

Source: Thomson Reuters. Announced or completed

transactions.

4

Our product knowledge, industry expertise and global reach deliver

superior results.

Consumer, Food & Retail

Financial Sponsors Product Expertise

Mergers & Acquisitions

Capital Markets

Financial Restructuring

Financial Advisory

Strategic Consulting

Private Equity Firms

Hedge Funds

Capital Alliances

Active dialogue with a diverse

group of 500+ sponsors.

Dedicated Industry Groups

Aerospace • Defense • Government

Business Services

Energy

Healthcare

Industrials

Real Estate, Lodging & Leisure

Technology • Media • Telecom

Transportation & Logistics

Financial Institutions

5

Our clients benefit from our local presence and our global reach.

North America Europe Asia-Pacific

Atlanta

Chicago

Dallas

Houston

Los Angeles

Miami

Minneapolis

New York

Newport Beach

San Francisco

Washington, D.C.

Beijing

Hong Kong

Mumbai

Singapore

Sydney

Tokyo

Amsterdam

Frankfurt

London

Madrid

Milan

Paris

Rome

Houlihan Lokey holds a strategic minority investment in Avista Advisory Group, an investment bank with offices in Mumbai and Singapore; and an indirect minority stake in

Leonardo & Co. S.p.A., an investment bank with offices in Milan and Rome. 6

Ms. Muller is Co-Head of Houlihan Lokey’s Fairness Opinion and Solvency

Opinion practices. She is also a member of the firm’s Technical Standards

Committee, a Vice Chair of the American Bar Association’s M&A Committee, and

a board member of the University of Pennsylvania Institute for Law and

Economics.

Ms. Muller is experienced in business and securities valuations and specializes in

fairness, solvency, and other transaction-based opinions. Her clients are typically

boards of directors, special committees, and other fiduciaries and have included

Google, Ciena Corp., Broadcom Corp., NVIDIA Corp., Brocade Communications,

Flextronics International, and VMware, Inc.

Ms. Muller speaks frequently at corporate and legal symposiums and seminars on

corporate finance and valuation, and she provides commentary in various

business publications. Recently, she has spoken at the National Institute on

Negotiating Business Acquisitions, the American Bar Association, and the

University of Texas Law School Technology Law Conference, as well as at

various Continuing Legal Education seminars.

Before joining Houlihan Lokey, Ms. Muller was a senior consultant at both Tucker

Alan and Peterson Consulting, where she performed litigation consulting services

that included analyzing economic damages for trial purposes.

Ms. Muller graduated cum laude with a B.A. in Mathematics/Economics from

Claremont McKenna College.

Jennifer S. Muller

Managing Director

San Francisco

Qualifications

B.A. Claremont McKenna

College

PAST Tucker Alan

Peterson Consulting

7

Introduction 3




5. Disclaimer 25

8,000

8,500

9,000

9,500

10,000

10,500

11,000

11,500

Index

NYSE

4,000

4,200

4,400

4,600

4,800

5,000

5,200

5,400

5,600

5,800

Index

NASDAQ

Stock Market Reactions

Market Indices

Trump Elected

Brexit

Source: S&P Capital IQ as of 1/20/2017.

Trump Elected

Brexit

Since the election, the NASDAQ composite index is up 7.0% and the NYSE is up 6.3%, on expectations that the Trump administration

will implement policies that will lower the corporate tax rate and boost earnings, among other factors

9

Volatility Index (VIX)

Market Volatility Movements


Market volatility has decreased in recent months after a couple brief spikes over the last year, with the VIX index registering at 11.5 on

January 20, 2017, as compared to 25.8 immediately following the Brexit announcement in June 2016 and 22.1 the days leading up to

the U.S. presidential election in November 2016

0

5

10

15

20

25

30

Trump Elected

Brexit

10

80.0%

90.0%

100.0%

110.0%

120.0%

130.0%

Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17

Yuan-USD Peso-USD Ruble-USD

Foreign Exchange Reactions

U.S. Dollar Exchange Rate Indices

The U.S. Dollar has gained 1.2% and 17.4% relative to the Yuan and Peso, respectively

Improved diplomatic ties and a possible lifting of sanctions have led to the U.S. Dollar falling 6.1% relative the Russian Ruble since the

election


Trump Elected

Since the election, the U.S. Dollar has generally strengthened relative to most currencies, with the notable exception being the

Russian Ruble

11

$0

$10

$20

$30

$40

$50

$60


Commodity Market Reactions

WTI Crude Oil Price

Source: Bloomberg as of 1/20/2017.

(dollar per barrel) Trump Elected

While oil prices were generally on the rise throughout 2016, oil prices have increased by an additional 17% since the election

12

Interest Rate Reactions

The Fed raised interest rates in December 2016 and is currently targeting two or three additional rate hikes in 2017

Source: S&P Capital IQ, U.S. Treasury as of 1/20/2017.

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

0 5 10 15 20 25 30

Tenor (Years)

As of 1/20/2017 As of 11/8/2016

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%


10 Year Treasury

Rate Hike Election

Interest rates have generally increased since the election; however, part of the increase is due to expectations of continued rate hikes

by the Federal Reserve

U.S. Treasury Yield Curve 10-Year U.S. Treasury Yield

13

Introduction 3




5. Disclaimer 25

Industry Sector Performance

(dollars in millions) Market Capitalization

11/8/2016 1/20/2017

Percent

Change

Consumer Staples $ 1,844,012 $ 1,831,435 -0.7%

Financials $ 2,475,940 $ 2,836,514 14.6%

Energy $ 1,337,288 $ 1,449,896 8.4%

Industrials $ 1,860,983 $ 2,012,049 8.1%

Consumer Discretionary $ 2,257,450 $ 2,390,438 5.9%

Utilities $ 616,600 $ 611,742 -0.8%

Technology $ 3,968,465 $ 4,137,774 4.3%

Healthcare $ 2,604,088 $ 2,657,629 2.1%

Real Estate $ 534,797 $ 559,564 4.6%

Materials $ 523,054 $ 562,530 7.5%

Telecommunications $ 454,410 $ 504,701 11.1%

S&P 500 $ 18,477,088 $ 19,554,273 5.8%

Note: Based on S&P 500 sector indices.


Sector Performance

The Financials and Telecom sectors have experienced the largest stock market gains since the election, while the Consumer Staples

and Utilities sectors have experienced small losses

10.0%

13.4%

7.2%

10.1%

12.2% 3.3%

21.5%

14.1%

2.9% 2.8% 2.5% Consumer Staples

Financials

Energy

Industrials

Consumer Discretionary

Utilities

Technology

Healthcare

Real Estate

Materials

S&P 500 Market Capitalization as of 11/8/2016

9.4%

14.5%

7.4%

10.3%

12.2% 3.1%

21.2%

13.6%

2.9% 2.9% 2.6% Consumer Staples

Financials

Energy

Industrials

Consumer Discretionary

Utilities

Technology

Healthcare

Real Estate

Materials

S&P 500 Market Capitalization as of 1/20/2017

Most sectors have traded up since the election, in-line with the overall market

15

Industry Sector Performance (cont.)

CY 2017E Earnings Per Share

11/8/2016 1/20/2017

Percent

Change

Consumer Staples $ 27.93 $ 27.42 -1.8%

Financials $ 27.13 $ 27.85 2.7%

Energy $ 16.46 $ 16.94 2.9%

Industrials $ 30.22 $ 30.28 0.2%

Consumer Discretionary $ 36.09 $ 35.77 -0.9%

Utilities $ 14.44 $ 14.42 -0.2%

Technology $ 49.14 $ 49.28 0.3%

Healthcare $ 55.80 $ 55.42 -0.7%

Real Estate $ 5.15 $ 4.98 -3.2%

Materials $ 18.46 $ 18.30 -0.9%

Telecommunications $ 12.50 $ 12.49 -0.1%

S&P 500 $ 130.86 $ 131.01 0.1%

Note: Based on S&P 500 sector indices.


Changes in 2017 Consensus Estimates

The Energy and Financials sectors have experienced the largest positive revisions in earnings estimates, while the Consumer Staples

and Real Estate sectors have experienced notable declines in earnings estimates

Overall, consensus earnings estimates for 2017 have not changed materially since the election, with the weighted average consensus

2017E EPS for the S&P 500 increasing by 0.1%

16

Introduction 3




5. Disclaimer 25

Domestic and Global M&A Activity

Global M&A Volume: Transaction Value Global M&A Volume: # of Transactions

U.S. M&A Volume: Transaction Value U.S. M&A Volume: # of Transactions

Both domestic and global transaction values decreased in 2016 relative to the high levels achieved in 2015, despite increases in the

number of transactions

Source: Thomson Reuters, as of 1/20/17.

Notes: Regional breakdowns are by target and are based on total number of transactions.

Includes minority equity deals, equity carve-outs, exchange offers, open market repurchases, and deals with undisclosed transaction values.

46,655 44,252

40,053 42,841 42,207

39,856 38,148

42,210

45,632 46,911

11,381 12,181 11,336 12,013

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q1 '16 Q2 '16 Q3 '16 Q4 '16

11,518

9,536

7,902 8,311

8,621 8,796 9,106

10,159 10,418

11,185

2,610 2,847 2,758 2,970

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q1 '16 Q2 '16 Q3 '16 Q4 '16

$1.52

$0.92

$0.76 $0.82

$1.04

$0.81

$1.04

$1.48

$1.85

$1.68

$0.26

$0.43 $0.34

$0.65

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q1 '16 Q2 '16 Q3 '16 Q4 '16

($ in trillions)

$4.25

$2.72

$1.95

$2.50 $2.52 $2.45 $2.38

$3.40

$4.12

$3.67

$0.71 $0.87 $0.83

$1.26

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q1 '16 Q2 '16 Q3 '16 Q4 '16

1%

($ in trillions)

18

International M&A Activity

Aggregate transaction values decreased substantially in both Europe and Asia in 2016 relative to 2015, while the number of

transactions remained relatively flat

Europe M&A Volume: Transaction Value Europe M&A Volume: # of Transactions

Asia M&A Volume: Transaction Value Asia M&A Volume: # of Transactions


Notes: Regional breakdowns are by target and are based on total number of transactions.

Includes minority equity deals, equity carve-outs, exchange offers, open market repurchases, and deals with undisclosed transaction values.

For purposes of the above charts, Europe includes Russia and Asia includes Australia and India.

16,513 16,194

14,257

15,948 16,086

14,346

13,206

14,420

15,820 15,713

4,012 4,348 3,706 3,647

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q1 '16 Q2 '16 Q3 '16 Q4 '16

1%

$1.72

$1.00

$0.54

$0.67 $0.65

$0.81

$0.55

$0.84 $0.86

$0.74

$0.19 $0.15 $0.19 $0.20

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q1 '16 Q2 '16 Q3 '16 Q4 '16

($ in trillions)

$0.59

$0.50

$0.43

$0.57 $0.55 $0.50

$0.54

$0.77

$1.27

$0.92

$0.22 $0.24 $0.20

$0.25

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q1 '16 Q2 '16 Q3 '16 Q4 '16

($ in trillions)

13,544 13,308 12,913 13,112

12,166 11,655 11,613

13,341

15,438 15,880

3,754 3,910 3,867 4,349

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q1 '16 Q2 '16 Q3 '16 Q4 '16

(0%)

19

Monthly Global M&A Activity

Global transaction volumes in January 2017 are on pace to decline to their lowest levels in over two years

* Figures for January 2017 have been pro-rated based on data as of 1/20/17.

Source: Thomson Reuters.

Notes: Includes minority equity deals, equity carve-outs, exchange offers, open market repurchases, and deals with undisclosed transaction values.

$220 $224

$349

$329

$354

$382 $400

$318

$254

$502

$376

$413

$186

$306

$218

$238

$313 $321

$282

$206

$340

$586

$291

$384

$261

3,249

3,131

3,761

3,886

3,651

4,294 4,254

3,463

3,832 3,772

3,620

4,719

3,549

3,628

4,204

4,015

3,867

4,299

3,830

3,622

3,884

3,802

3,874

4,337

2,923

Transaction Value ($ in billions) Number of Transactions

20

Monthly Domestic M&A Activity

Domestic transaction volumes in January 2017 are on pace to increase to their highest levels in over two years despite only a modest

pickup in transaction values relative to December 2016

* Figures for January 2017 have been pro-rated based on data as of 1/20/17.

Source: Thomson Reuters.

Notes: Includes minority equity deals, equity carve-outs, exchange offers, open market repurchases, and deals with undisclosed transaction values.

$74

$113

$188

$65

$210

$162

$246

$190

$93

$206

$142

$162

$91 $99

$67

$113

$165 $154

$111 $100

$131

$400

$157

$94

$114

895

825

895 914

852

965

910

823

855 873

721

890 912

821

877

906 918

1,023

820

988

950

981 1,001

988

1,097


21

Cross-Border Transaction Activity

Number of U.S. Related Inbound and Outbound Cross-Border Transactions

U.S. inbound cross-border activity increased slightly in 2016 relative to 2015, while U.S. outbound cross-border activity declined

slightly over the same time period


Recent cross-border activity has been driven by investor interest in high-growth regions, as well as from U.S.

companies seeking to take advantage of their relative strength and off-shore cash balances by pursuing acquisition

opportunities overseas

1,543

1,290

1,010

1,115 1,181

1,074

958

1,205

1,335 1,403

344 351 351 357

2,264

1,931

1,376

1,751 1,814

1,743

1,636

1,951 1,991

1,846

467 448 491

440

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q1 '16 Q2 '16 Q3 '16 Q4 '16

Transactions with Domestic Targets / International Buyers Transactions with International Targets / Domestic Buyers

22

U.S.-China Cross-Border M&A Activity

While U.S. inbound cross-border transaction activity from China increased substantially in terms of both value and number of

transactions, U.S. outbound cross-border transaction activity into China decreased in 2016

U.S. Inbound Cross-Border Activity from China


U.S. Outbound Cross-Border Activity into China

$4.5

$2.6 $2.2

$3.1 $2.9

$5.9

$3.7

$5.0 $4.6

$0.8

169

136

79

101

77

61

47

62 57

26

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016


$9.1

$0.9 $2.3 $2.6 $1.2 $5.9

$9.9 $6.3 $6.4

$54.5

24 21 24

35 40

34 30

60

74

111

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016


23

Regulatory Impact on Mega-Deal Activity

Transaction

Blocked /

Withdrawn

Date

Transaction

Value Outcome

Aetna – Humana 1/23/2017 $35 billion Blocked

Staples – Office Depot 5/10/2016 $7 billion Blocked

Halliburton – Baker Hughes 5/1/2016 $38 billion Withdrawn

Pfizer – Allergan 4/5/2016 $192 billion Withdrawn*

Comcast – Time Warner

Cable

4/24/2015 $71 billion Withdrawn

AbbVie – Shire 10/20/2014 $55 million Withdrawn*

The Department of Justice under President Obama was active in seeking to block certain mega-transactions in recent years due to

antitrust and other concerns

* Deals were withdrawn due to rules limiting tax inversions, not due to antitrust concerns.

** Companies may divest certain assets to facilitate DOJ approval.

Source: Thomson Reuters, News Articles.

Transaction

Transaction

Announced

Date

Transaction

Value Outcome

AT&T – Time Warner 10/22/2016 $108 billion Pending

Bayer – Monsanto 5/18/2016 $66 billion Pending

Sherwin Williams – Valspar 3/20/2016 $11 billion Pending**

Dow Chemical – DuPont 12/11/2015 $68 billion Pending

Walgreens – Rite Aid 10/27/2015 $17 billion Pending**

Anthem – Cigna 6/20/2015 $49 billion Expected to

be blocked

Notable Recent Blocked Deals Notable Deals Pending DOJ Approval

While President Trump has made comments expressing his disapproval of the pending AT&T – Time Warner transaction, many expect

the new Department of Justice, under Attorney General Jeff Sessions, to be more favorable towards deal activity

24

Introduction 3




5. Disclaimer 25

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Disclaimer

26

CORPORATE FINANCE

FINANCIAL ADVISORY SERVICES

FINANCIAL RESTRUCTURING

STRATEGIC CONSULTING

HL.com

27

Latham & Watkins operates worldwide as a limited liability partnership organized under the laws of the State of Delaware (USA) with affiliated limited liability partnerships conducting the practice in the United Kingdom, France, Italy and Singapore and as affiliated

partnerships conducting the practice in Hong Kong and Japan. The Law Office of Salman M. Al-Sudairi is Latham & Watkins’ associated office in the Kingdom of Saudi Arabia. © Copyright 2015 Latham & Watkins. All Rights Reserved.

ABA International M&A Panel Possible Tax Reform Proposals

January 28, 2017

Laurence J. Stein

Latham & Watkins LLP

Prospects for Tax Reform – Are the Stars Aligning?

• Since last significant tax reform (1986), the US corporate

tax system has increasingly become an outlier as other

countries have lowered corporate rates and adopted

territorial tax systems.

• Tax reform identified as key agenda item during the

campaign by President Trump (“Trump Plan”).

• Ways & Means Committee released tax reform blueprint

in June 2016 (“Blueprint”).

• Republican control of both the Executive and Legislative

Branches in 2017.

Lower Corporate Rate

• Blueprint lowers the corporate tax rate from 35%

to 20% (Trump Plan – 15%)

• Eliminates corporate AMT.

• Potentially tax pass-throughs at a flat rate on

retained income (rather than under regular

individual income tax rates).

• Blueprint – 25%.

• Trump Plan – 15%.

Corporate Capital Structure

• Blueprint disallows deduction for interest

expense, except to extent of interest income.

• Fundamental change --designed to remove “tax

distortions”.

• Seen as tradeoff for immediate expensing of

investments. (Trump Plan – elect full expensing or

interest deductibility.)

• Special rules for financial services companies?

• Impact

• Incentivize companies to push debt overseas (where

interest deduction may be available and beneficial)?

Repatriation – Territorial System

• Blueprint imposes one-time tax on deferred

earnings -- mandatory deemed repatriation.

(Trump Plan similar -- slightly higher rates.)

• 8.75% for cash and cash equivalents.

• 3.5% for invested earnings.

• Payable over 8 years.

• Future overseas earnings exempt when earned and

repatriated.

• Unlocking $2.5 trillion of earnings.

• Pressure for buybacks and one-time dividends?

• More domestic M&A?

• Easier to use foreign subs for credit support.

Destination-Based Cash Flow Tax

• Revolutionary and controversial – based on

“cash flows” and would be “border adjustable”.

• Cash-flow tax on business activity

• Immediate expensing (so no basis), and tax then

imposed on gross receipts generated by asset.

• Border Adjustments

• Exempts US Exports from Tax. Revenue (not just

profit) from exports (products, services) not taxed.

• Fully Taxes US Imports. Cost of imports not

deductible, so when USCo sells an imported good in

US, tax imposed on full revenue received.

• Similar to border adjustments in non-US VAT’s.

Destination-Based Cash Flow Tax

• Observations

• Net effect is to impose tax on goods/services

consumed in US, regardless of where produced.

• Potential WTO Issues – border adjustments allowed

only for indirect taxes (e.g., VAT).

• Importers will have high tax burden as effectively

paying 20% tax on full revenue, not just profits.

• Impact

• US exporting business more valuable, and

conversely US businesses which rely on offshore

manufacturing less valuable?

• Economists assume currency prices will adjust.

• Application to complex supply chains?

Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates Proposed Regulatory Reform and its Impact

•ABA International M&A

Subcommittee Meeting

PROPOSED REGULATORY

REFORM AND ITS IMPACT

January 28, 2017

Brian J. McCarthy

Skadden, Arps, Slate, Meagher & Flom LLP


PROPOSED REGULATORY REFORM AND ITS

IMPACT

• Regulatory Policy – Overall Theme: Cut back on regulations

1) Pro-Business Stance: In Trump’s own words, “I will eliminate all needless and job-

killing regulations now on the books”

2) Cabinet Members include:

− Department of the Treasury: Steven Mnuchin, former senior executive at Goldman

Sachs and hedge fund manager

− Department of Commerce: Wilbur Ross, private equity billionaire

− Department of Labor: Andrew Pudzer, CEO of Hardee’s and Carl’s Jr., very pro-

business/anti-regulation views on labor

3) Trump’s early actions on the Dakota Access and Keystone Pipelines as well as his

efforts to reduce the power of the EPA are indicative – Consistent with general

themes of the Republican Party, but… the Trump Wildcard Factor

• Deregulation Agenda – May bring sector specific opportunities: Banking,

insurance, natural resources, healthcare



IMPACT (CONT.)

• Antitrust – Less aggressive attitude on merger review

1) Obama Administration: 2008 Campaign Promises – “Reinvigorate antitrust

enforcement, which is how we ensure that capitalism works for consumers”

− Vigorous antitrust enforcement (second term in particular)

» 8 blocked deals

» 28 required remedies

» 3 abandoned due to agency opposition

2) Trump Administration: “AT&T is buying Time Warner and thus CNN, a deal we will

not approve in my administration because it's too much concentration of power in

the hands of too few”

− FTC: Maureen Ohlhausen named acting chair

− DOJ Antitrust Division: Not yet announced

− Other changes in key personnel coming

− Consensus: Expectation of a less aggressive enforcement for deals

3) Outlook: In a state of considerable transition, antitrust outcomes should resemble

past Republican administrations – Fewer challenges to merger activity overall with

greater reliance on economic analysis… But…. THE TRUMP FACTOR EXISTS!



IMPACT (CONT.)

• National Security Review – Committee on Foreign Investment in

United States (CFIUS)

1) US M&A transactions with foreign buyers = 1/3 of U.S. M&A deal value in 2016

2) Most foreign acquisitions will continue to be welcomed, BUT if potential national security

issues – which under Trump Administration may mean risks to American jobs and

preeminence in certain industrial sectors – may expect more detailed CFIUS review

3) Subcabinet appointments in key areas will clarify administration’s approach

4) Appointments in key economic positions, including Treasury (Mnuchin), State (Tillerman),

Commerce (Ross) and National Economic Council (Cohn): All deal makers

5) But, some have indicated CFIUS process may not adequately address trade issues –

reciprocal market access

6) Also, appointments at Defense (General Mathis) and Justice (Senator Sessions) are

skeptical of investments from geopolitical rivals: Expect a more rigorous review

7) Key Theme: Maintain domestic employment

8) Reciprocal Market Access: Countries with strong bilateral trade relationships with the

U.S. should continue to have a favorable position before CFIUS

9) Senior and mid-level political appointees will tell the tale, since they make the majority of

CFIUS decisions



IMPACT (CONT.)

• Coordination with NATO Allies

1) Recent CFIUS reviews have involved international cooperation or parallel national

security review

− Proposed Acquisition of Germany’s Aixtron SE by Grand Chip Investment (PRC)

blocked by U.S. and Germany

− Alcatel-Lucent by Nokia cleared by U.S. and France

• Congressional Action on CFIUS

1) Renewed Congressional interest in reviewing/reforming CFIUS staffing, funding and

authority

− Consider economic impacts of foreign investment

− Consider openness of investors’ countries to U.S. investment

2) GAO has announced it will review CFIUS statutory and administrative authorities

3) Last significant overhaul – 2007

4) Subsequent attempts to expand – unsuccessful

5) Heightened focus on foreign trade and investment by Congress and new

Administration – more possibility for change


M&A CROSS-BORDER TRANSACTIONS – EUROPE

• Increased Investment – UK and European companies will likely

increase investment in the U.S. (but strength of dollar is a factor)

• Russia – Potential to create new Russia-U.S. M&A deals and restart

deals that have been on hold

• Downside – Uncertainty regarding the WTO and regional trade

agreements in addition to the renegotiation of the UK’s trade and tariff

arrangements could undermine executive suite confidence integral to

cross-border M&A


M&A CROSS-BORDER TRANSACTIONS – ASIA

• CFIUS Issues – There is concern among Asian M&A buyers (particularly

those in China) that CFIUS approval may be more difficult to obtain

1) Trump’s focus on trade and investment practices, especially involving

China, could lead to the expansion of the scope of CFIUS reviews (under

which the definition of national security currently excludes economic

impact)

2) The Trump administration may follow the trend in European national

security reviews and take market access and other economic issues into

consideration

3) Parties pursuing cross-border investments (particularly those from China)

should consider crafting a preemptive risk mitigation package

• Chinese Reaction – China’s regulatory authorities could react to increased tensions

in economic relations with the U.S. which could affect both U.S. investment in China and

Chinese investment in the U.S.

• Impact of Chinese Currency Controls

international m&a subcommittee meeting · 3 duff & phelps 529 4 bank of america merrill...

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