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- [00:01]
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- [00:25]
Alex Osola
It's Sunday, August 17th. I'm Alex Osola for the Wall Street Journal. This is what's NEWS Sunday, the show where we tackle the big questions about the biggest stories in the news by reaching out to our colleagues across the newsroom to help explain what's happening in our world. On today's show, are we in our merger era? Signs point to yes. Wall street is coming off a hot summer of deals, unusual for this time of year. We discuss why for companies big is in, whether the tie up trend is likely to continue and what roadblocks might stand in the way. Late last month, rail operator Union Pacific announced that it would acquire rival Norfolk Southern, creating the first coast to coast rail operator in U.S. history. That deal, for about $70 billion, may be the largest to be announced in recent months, but it's far from the only one. Back in May, credit card company Capital One acquired Discover for $35 billion. In the entertainment industry, Paramount bought Skydance Media for 8 billion. In the grocery department, Nutella maker Ferrero bought Breakfast cereal conglomerate W.K. kellogg for about $3 billion. And in tech, Google parent Alphabet made a blockbuster $32 billion bid for cybersecurity startup Wiz. That's just a sampling of the many deals done across many different industries. Taken together, they're an indication of a red hot period for mergers and acquisitions, one that many on Wall street hope can continue. WSJ lead deals reporter Lauren Thomas joins me to help better understand this productive period of dealmaking and what's driving it. Lauren, I just mentioned a whole bunch of deals. What do they have in common?
- [02:08]
Lauren Thomas
What I've been hearing from bankers and advisors and others across Wall street is just this idea that deals are back. And really we started the year off thinking that under Trump it was going to be an an M and a bonanza. And that just didn't really transpire. I think when we got into April around Liberation Day and a lot of the tariff noise and just geopolitical uncertainties throughout this year so far, that's been a big overhang and I think we hit the summer and companies have gotten to a point where they're comfortable enough under Trump and have settled into this new normal, quote, unquote, that they're just ready to get out and do deals, and CEOs don't wanna sit on the sidelines any longer.
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Alex Osola
What do companies hope to gain by becoming so large? Is this an effort for expansion or are they really playing defense?
- [02:54]
Lauren Thomas
It totally depends. And certain industries are in different phases right now. Take consumer retail, for example, where you have a company like Kraft Heinz, which we've reported has been exploring a breakup. And you have another business out there, Kinview, which owns Tylenol and Band Aids. And they're exploring strategic alternatives that could entail a sale of the company or a breakup. The consumer retail space is one area right now that that is up against slower growth. And these companies are not necessarily like tech, where you're seeing great earnings and stock prices running up. Some of these consumer companies are hitting a wall. So if you're in consumer retail, maybe you're looking to pursue M and A or looking to break up the business or sell pieces of the business as a way to find growth versus tech. It's just growth, growth, growth. And you want to keep buying and you have all this cash and you're able to go out and do deals. It's different depending on which industry you're in. But generally it does to you want to show your investors that you can keep growing.
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Alex Osola
So you mentioned the possibility of Kraft Heinz breaking up. There's also Honeywell, which announced that it would be breaking up. So how does breaking up result in growth versus merging as well?
- [04:08]
Lauren Thomas
Right. Well, it is kind of ironic because you've got a lot of M and A going on and companies are looking to do deals. And then at the same time, you see this wave of breakups. And over time, you can just look at Wall street and it is very cyclical. You'll see a company buy up smaller companies for years and then they become this behemoth. And then they reach a moment when they're too big, and then suddenly pieces of the business are worth more or could be valued at a higher multiple if they were separated from that bigger entity. So it's almost like a rinse and repeat. I do think that that's just part of the nature of how these things play out over the years. You've seen some of these bigger companies lately, like a Honeywell get to the point where it is so big and the stock becomes kind of stagnant. In the case of Honeywell, they had this aerospace and defense business that was growing really quickly inside of Honeyw, but it wasn't being valued as it would as a standalone company. Within the bigger entity. So they decided to spin it out. And they also were facing pressure from activists to do so. Activist investors will often play a role in coming in and pushing for some of those changes.
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Alex Osola
You mentioned tech. As an industry that has seen more mergers than breakups. I can't help thinking about Google, which has been faced with some antitrust enforcement that might actually force it to break up. Yeah, can we talk a little bit about that? What is going on with antitrust at the Trump administration and where does that leave a lot of these big tie ups?
- [05:31]
Lauren Thomas
Yeah, no, the Google situation is really unique too, because of course they went out and did a big deal earlier this year. Now that deal hasn't closed yet, but they're planning to acquire the cybersecurity company Wiz, which was a big Israeli startup and huge player in the cyberspace. There are two different things happening here. While, yes, they're facing this antitrust case for creating a monopoly around search, the company has still been able to go out and look and do big M and A within. What we've seen in tech specifically is a lot of these CEOs I think, have realized under the Trump administration really helps to have a line into Washington. And maybe that means having a line in directly to Trump. Mark Zuckerberg, for example, has been spending more time with Trump and down in D.C. whereas under the Biden administration you had Lina Khan and the FTC was very anti big tech.
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Alex Osola
Beyond tech, what is the Trump administration's track record so far with antitrust enforcement?
- [06:29]
Lauren Thomas
It's early days for sure, because a lot of these deals have just been announced. But the one thing that I hear repeatedly from advisors and especially people down in D.C. is this idea that the Trump administration is much more open to remedies. And effectively that's if you have company A and company B, they want to merge and you go down to D.C. and you're meeting with the FTC and the FTC or whatever agency will say, okay, you can do that deal, but you just, you need to sell off this little piece of your business. We think that that might be an issue or there's too much overlap there. So they propose kind of a remedy or solution where you might have to do something here, something there, sell a piece of your business in one part of the country where there could be too much of a monopoly, but then they'll let your deal go through. So there is a general understanding that the Trump administration is much more in favor of letting deals work their way through the system and presenting kind of these Smaller solutions to get there.
- [07:23]
Alex Osola
Coming up, Can Wall Street's dealmaking vibe continue? More after the break.
- [07:30]
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- [07:52]
Alex Osola
Okay, there's so much going on in M and A. Lauren, have we entered a big company era?
- [07:58]
Lauren Thomas
Certainly in tech it feels that way and maybe consumer, too. In other industries, it gets to a point where it's no longer efficient, maybe, or you're no longer as profitable or able to make money operating at a smaller scale. And so companies do face this moment of reckoning. Either we join forces with this other company to remain relevant and to be able to keep operating and to pay our bills on time and pay our workers, or you risk falling behind. And it's very timely. I've been covering past couple of days just what's going on at Intel. That's a big company that's at a pivotal, critical moment. It has to figure out what it's going to do. And a lot of people have argued that for a number of years now, intel has fallen behind and maybe moved too slowly, and it's valued at less than 100 billion, a fraction of what it once was. And we could possibly see some M and A there now because of the state that intel is in. So I think there are a lot of case studies.
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Alex Osola
What are some of the logistical issues or even advantages of when you have two big companies come together? Does that create this kind of unwieldy beast to operate?
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Lauren Thomas
Yeah, there have been certainly situations in which there's been a big merger and it totally flops. Integration is really tough. And you have two CEOs, you have two boards. There are all these logistics that you have to work through and pick, okay, who's gonna run this, who's gonna run that? Are we keeping your name or are we keeping. And I think that's often where some of the most interesting stuff happens is actually after the fact. I think a lot of times what people will say is, you know, getting the deal across the finish line, getting it signed is one, one thing, but then that's where the hard work really starts. That's like day one of navigating that whole process.
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Alex Osola
For those smaller companies, there was once an advantage to kind of making it on your own until you could really be at fighting size. Do you get a sense that that is kind of no longer the case, that for a lot of these tech startups in particular, it is more advantageous to get acquired and then build from there.
- [09:59]
Lauren Thomas
They might not say it outright, but I do talk to a lot of founders. That's definitely the goal. That's one of the goals. You know, either you get acquired or, of course, you could go public. It's got me thinking of a recent case study that we've kind of watched play out in real time. Figma, this design tech company that at one point was close a couple of years ago to being acquired by Adobe. But then that deal got blocked. It didn't happen. Figma remained a standalone business, and it just IPO'd very recently here, and it was a pretty successful IPO. So that's an example of where it was close to being acquired, but then it was able to remain a standalone business for some time and now is probably able to unlock more value through the public markets than it would being acquired. That IPO route will still be there for some, but I. I think it's very hard nowadays to achieve a scale like Figma did.
- [10:49]
Alex Osola
As someone who's been covering this space for a while, do you see a relationship between the frequency of M and A and the frequency of IPOs?
- [10:59]
Lauren Thomas
Yeah, definitely. Certainly when I started this job, folks would always tell me, you tend to see a burst in the IPO market precedes a burst of activity in the M and A market. And in deals, first you'll see the wave of IPOs, then you'll see the wave of deals. It's almost been reversed, I think in part because there were so many IPOs in 2021 kind of coming out of the bouts of COVID and that pulled forward a lot of demand, and a lot of those IPOs, unfortunately, kind of fell flat and now are just not doing well and maybe shouldn't be public companies. And so the narrative has switched in a way, but in general, I would say the two do tend to move in tandem.
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Alex Osola
There's a lot of hope that given the sort of beginnings of some movement in the IPO market this summer, that they're gonna really explode. And all these companies that have been sitting on the sidelines are finally gonna go public.
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Lauren Thomas
Yeah.
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Alex Osola
Do we expect this frenzy of M and A to continue as well?
- [11:59]
Lauren Thomas
My conversations are any signal. I mean, as we sit here right now, it's August, and typically this is like the dog days of summer, and everyone's in Europe or on vacation or out in the Hamptons. And I feel like way more bankers and lawyers I talk to are stuck in New York City and sitting in boardrooms or on conference calls and hammering out deals because companies have CEOs are at a point where they see a window of opportunity. And it's like, let's go out and get this done. Even if it's August, the expectations are high riding into the rest of the year. I've had a lot of folks tell me, just buckle up, get ready, because after Labor Day, the expectation is it's going to be pretty busy. And of course, these bankers and lawyers get a cut of the fee as well. So they're motivated to see things get done.
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Alex Osola
Do you see any potential roadblocks for this M and A bonanza?
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Lauren Thomas
So great caveat to all of this big grain of salt is that it is still the Trump administration. And as we've seen, it can be unpredictable. And so one day the administration might be feeling good about a deal, the next day maybe not. Take this. Verizon buying Frontier Communications. Well, Verizon ultimately had to rewrite and scrap some of its policies around DEI in order to get the deal done. And then they finally got the approval they needed from the FCC to close that deal. So I, I think we've entered this new era of there are different players in Washington. They're motivated. Some of it's tit for tat, but it could change on a dime.
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Alex Osola
That was WSJ lead deals reporter Lauren Thomas. Thank you, Lauren.
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Lauren Thomas
Thank you so much.
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Alex Osola
And that's it for what's new Sunday for August 17th. Today's show was produced by Charlotte Gartenberg with supervising producer Michael Kosmides. We got help from deputy editor Chris Sinsley. Hi, I'm Alex Osola. We'll be back on Monday morning with a new show. Thanks for listening.