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Names discussed: HUM, CI, INTC, QCOM, MRK, WSC, MGRC

New Trump admin likely to boost deal-making in 2025

With Donald Trump having clinched the US Presidential election, it’s worth a look back at some of the activity that followed his last win.

Back in 2016, Trump’s victory appeared to catch the market off guard, leading to some extreme initial volatility. The major indices closed up around 1.5% the day following the 2016 election, with notable strength in sectors like energy and financials.

This time around, with polls having suggested a tossup heading into the vote, S&P 500 futures are up well over 2%.

As far as M&A activity, the number of announced US deals in 2017 ticked up 11% over 2016, with a 3% increase in total value, according to Mergermarket data.

In terms of completed deals, 2016 saw technology take the top spot at USD 409bn, helped by pre-Trump megadeals such as Dell’s USD 64bn acquisition of EMC and the USD 36bn Broadcom/Avago merger.

The following year, energy and natural resources led with USD 320bn, followed by healthcare at USD 250bn, and consumer & retail at USD 237bn. Energy and natural resources led again in 2018 at USD 426bn, with healthcare coming in at USD 315bn and technology at USD 312bn.

In terms of deal activity, the Flash previously noted that 3Q24 was wrapping up to be the year’s highest deal volume – an uptick that seemed to bode well for both 4Q24 activity as well as 2025. With the Fed expected to cut rates again tomorrow and a friendlier antitrust environment now likely, it’s a safe bet that the rise in announced US deals next year will trump the 11% rise we saw after the 2016 election.

Changes ahead for FTC pave way for HUM-CI, INTC-QCOM, and others

A decisive Trump victory will likely spell the end of Lina Khan’s tenure as head of the Federal Trade Commission.

Trump supporter and campaign donor Elon Musk said just last week that “She will be fired soon,” referring to Khan. The GOP-led House Committee on Oversight and Accountability published a report the same day, too, accusing Khan of destroying FTC agency norms.

The ouster of Khan, a known merger antagonist, likely paves the way for some go-forward boardroom clarity on antitrust and portends what may be a gangbuster year for M&A in 2025.

Here are some potential beneficiaries from the election:

Humana [NYSE:HUM] / Cigna [NYSE:CI]:

It’s no great secret that healthcare has been a focus of the Biden antitrust triumvirate. The Department of Justice (DoJ) challenged (and failed to block) UnitedHealth Group‘s [NYSE:UNH] takeover of Change Healthcare in 2022 as well as the insurer’s follow-on acquisition of Amedisys [NASDAQ:AMED], which is still under review, having received a second request back in August 2023. While the DoJ is not the FTC, its antitrust head, Jonathan Kanter, a Biden appointee, will likely be viewed similarly to his FTC counterpart.

This could pave the way for a major insurer combination that has been talked up over the past year. HUM and CI were in deal talks late last year, but they reportedly fell apart over price. Bloomberg reported last month that the pair had resumed merger discussions. The report said that CI is looking to close the sale of its Medicare Advantage (MA) business before committing to any other transactions. The MA segment is seen as a major overlap with HUM and, as a result, a hurdle to any potential tie-up.

CI CEO David Cordani was scant on business development details on the company’s recent 3Q24 earnings call, saying that capital deployment priorities remain consistent with our long-term framework. Regardless, there’s been enough smoke around this deal that a changing of the guard at the antitrust level may finally bring it to fruition. HUM shares were up 11% in the pre-market this morning.

Intel [NASDAQ:INTC] / Qualcomm [NASDAQ:QCOM]

Reports emerged in September that QCOM had approached INTC about a possible takeover, with one of the biggest hurdles being the inherent antitrust entanglements between the two companies. Bloomberg reported just last month that QCOM was punting on an INTC takeover until post-election. Well, here we are, and while stateside approval may now be easier to come by, seeking approval from China may now have become more difficult.

This news service reported on 30 October that the deal will face “significant antitrust difficulties in China” citing competition lawyers familiar with China antitrust authority, the State Administration for Market Regulation (SAMR)’s, thinking on chip deals. The report further stated that the deal is unlikely to get a SAMR nod without a carefully crafted structure or a significant divestiture, adding that INTC and QCOM share a wide range of Chinese customers in industries spanning automobile, smartphone, and internet sectors.

Biotech?

Outside of Lundbeck‘s [CPH:HLUN-A,HLUN-B] announced takeover of Longboard Pharmaceuticals [NASDAQ:LBPH] for USD 2.1bn last month, we have yet to see a veritable big pharma-initiated deal since July: Eli Lilly‘s [NYSE:LLY] USD 3.4bn acquisition of Morphic Holdings.

It’s been no secret that this has been an FTC seen as hostile to pharma M&A, thinking specifically about the agency’s brief attempt to thwart Amgen‘s [NASDAQ:AMGN] takeover of Horizon Therapeutics with a novel theory around reimbursement bundling, only to quickly backtrack on the challenge.

We’ve talked previously about how Merck [NYSE:MRK] is positioned as a likely buyer. With the JP Morgan Healthcare Conference on deck for January, it would be unsurprising to see a transformational deal out of the drugmaker next year.

Year End

A slew of deals with wide spreads are guiding for a close by the end of the year and, with the election now behind us, we would expect to see some movement on these tie-ups sooner rather than later:

United States Steel [NYSE:X] / Nippon Steel [TSE:5401] (2H24)

Spread: 40%

Discover [NYSE:DFS] / Capital One [NYSE:COF] (Late 2024/Early 2025)

Spread: 11.45%

Catalent [NASDAQ:CTLT] / Novo Nordisk [NYSE:NVO] (End of 2024)

Spread: 8.5%

TOMS Capital Management pushes for strategic review at WSC

Less than two months after regulatory hurdles derailed Willscot Mobile Mini’s [NASDAQ:WSC] proposed acquisition of McGrath RentCorp [NASDAQ:MGRC], the company has a new problem on its hands: an activist.

Yesterday, Bloomberg reported that TOMS Capital Management has taken a stake in WSC and is pushing for a strategic review.

After WSC’s deal with MGRC was terminated, WSC paid a USD 180m break fee and announced boosting its share repurchase authorization to USD 1bn.

Shares of the company fell 15% after reporting 3Q24 earnings late last month. Management cut guidance, citing headwinds in non-residential construction. WSC plans to get back on the M&A hunt in 2025 with tuck-in acquisitions.

We’ll see if that strategy remains now that there’s an activist involved. The board nomination window opens up on 6 February.

As for WSC’s former deal partner, MGRC reported strong earnings last month, leading to a rally in shares. We previously had MGRC on the radar for a potential activist given a plunge in shares following the deal break and another suitor disclosed in the proxy. Given MGRC’s strength, we can probably remove it from the watchlist now, swapping its place for WSC.