Foster's, Medco: Daily Deal Watch

NEW YORK (TheStreet) -- On Wednesday SABMiller Plc said that after increasing its offer forFoster's Group Ltd. by 2.8 percent, the Australian beer maker has finally agreed to the merger.

SABMiller -- the international beer conglomerate that owns U.S. light beer favorite Miller Lite paid A$9.9 billion ($10.2 billion) for Melbourne- based Fosters and said in a press release that it will offer shareholders A$5.10 a share in cash. According to the company's website, the addition of Fosters will provide its first entry into Australia, the only continent where it doesn't have existing brands.

In its announcement, SABMiller said that it valued Fosters at an enterprise value of A$11.5 billion, which is the company's stock value and debt less its cash.

Previously, Fosters management rejected SABMiller's first A$4.90 a share takeover attempt in June, saying, "The value (of the bid) was so far from reality, it wasn't worth engaging." SABMiller then took their offer to buy the company directly to shareholders in a hostile takeover attempt this summer.

The majority of Fosters shares were held by institutional investors and hedge funds, with only 5 percent held by retail investors according to theFinancial Times. Express Scripts(ESRX) stood before a U.S. House Judiciary Committee chaired by Texas Republican Lamar Smith on Tuesday to defend its $29.1 billion acquisition of Medco Health Systems Inc. (MHS) against anti-trust allegations. Because the merger would create the largest pharmacy benefits manager in the country Congress, led by Judiciary Chair Democrat Lamar Alexander of Texas and Democrat John Conyers of Michigan began a Judiciary Committee inquiry into the proposed merger started earlier in the summer.

The combination with Medco would add 135 million customers to Express Scripts, roughly a 50 percent increase. CVS Caremark, the third largest pharmacy benefits manager currently has roughly 85 million customers according to Arthur Henderson, an analyst at Jefferies & Co.

The FTC is also scrutinizing the deal, which is the second largest merger of the year after the U.S. Department of Justice blocked AT&T's (T) attempt to acquire T-Mobile for $39 billion. That merger, the DoJ argued took the industry from three competitors to two and violated its Herfindahl-Hirschman index of industry concentration.

Downplaying concerns about industry concentration, Express Scripts Chairman in CEO said in a statement released prior to the hearing that, "Express Scripts is one of more than 40 pharmacy benefit manager, or PBM's, operating in the United States." David Snow, CEO of Medco said that by, "combining the complementary expertise of the two companies, we will be able to significantly accelerate efforts to reduce overall costs in the health care system."

Rejecting the notion that their merger is "too big to fail," Capital One Financial Corp (COF)and ING Direct USA (ING) on Tuesday defended their proposed $9.1 billion merger, saying the combined bank, which would be the fifth largest in the U.S. with roughly $290 billion in assets would not become a threat to the financial system.

Capital One announced it would buy ING Direct, the U.S. online-lending business of Dutch lender ING Groep NV's on June 16th. The public hearing, held at the Federal Reserve in Washington D.C., sought examine whether the merger will produce benefits to consumers that "outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, unsound banking practices, and risk to the stability of the U.S. banking or financial system." Chris Cole a senior vice president of the Independent Community Bankers of America said that any bank with $100 billion in assets is a risk to the U.S. financial system.

Conyers, Jackson-Lee Outline Potential Harm and Systemic Risks of Proposed NYSE Mergers

Contacts: Nicole Triplett, 202-226-5543                                                                                  
Friday, April 1, 2011  

Drew Stout, 202-225-3816                                                                                        

                                                                                                                                

Conyers, Jackson-Lee Outline Potential Harm and Systemic Risks of Proposed NYSE Mergers

Mergers Would Decrease Jobs and Consumer Choice---Unacceptable for Current Economic Climate

(Washington)—Today, at the Intellectual Property Subcommittee Hearing on “Competition and Consolidation in Financial Markets,” House Judiciary Committee Ranking Member John Conyers, Jr. (D-Mich.) and Congresswoman Sheila Jackson-Lee (D-Texas) raised their concerns of the potential economic harm that would result from the proposed mergers of either the New York Stock Exchange (NYSE) with Deutsche Boerse or the NYSE with the National Association of Securities Dealer Automated Quotation (NASDAQ).

We are generally against any mergers of this size.   Mergers of this size must prove to the American people the immediate value they bring to job creation and stabilizing the economy.  The potential for harm, systemic risks, outweigh any perceived gains in efficiency. Moreover, analysis of the consolidation in the financial exchange markets does not change relative to who the buyer is.  We are against NYSE merger with Deutsche Boerse but we are equally against NYSE merging with NASDAQ.  At a fundamental level, both mergers would result in fewer jobs and less choices for consumer and public traded companies.

Specific to a merger with Deutsche Boerse, the proposed merger would create massive transnational regulatory issues that the world has yet to create the infrastructure to regulate specifically which entity could effectively oversee and regulation a transnational combined company of this complexity and how much control would the US have over such transnational regulators?  No entity exists right now to accomplish that necessary goal.

Merger between NYSE and NASDAQ would be akin to General Motors merging with Chrysler, such a horizontal merger in the United States should not take place, whether in the automobile industry or the financial services industry.   Such a merger would result in a loss of jobs in New York and around the country, at a time when NY and the entire US cannot tolerate additional job losses.  Moreover, the merger would lead to less choices for consumers in their investment choices and to companies seeking listings.

This is not a “failing industry” so that defense against competition concerns is not useful.  This is simply about increasing profit by creating greater leverage for the financial exchanges.

Moreover, the question should be whether the mere existence of dollars to spend by the purchaser is sufficient enough to allow a merger to go forward.  The determining factor should be an examination of the value it brings to the American people, and how anti-competitive it would ultimately be. 

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