As the festive season arrives, it may not just be European consumers who flock to New York for goods at prices that seem like a steal back home. The weakening of the dollar and strengthening of the euro has also been a great gift for many eurozone companies, reports the FT on Friday.
When France’s Vivendi began flirting with the idea of buying Activision, the US video games group, for example, €1 was worth about $1.30, says Jean-Bernard Lévy, Vivendi’s chief executive. That was in January. On Sunday, when Vivendi revealed a deal to take control of the maker of the “Call of Duty” war game, €1 was worth $1.47. Although Activision was targeted for strategic reasons, Mr Lévy says that the strengthening of the euro was a bonus. Vivendi is not alone.
The focus on the rise of the euro has so far been on the difficulties caused for French, Italian and German exporters such as Airbus. But the feebleness of the US currency has also made transatlantic dealmaking more alluring. Some bankers play down the likelihood of a wave of dealmaking by European companies in the US, due to countervailing factors such as bond market unease and lack of clarity on interest rates. But there is no denying companies’ mounting enthusiasm about their spending power in the US.
“It definitely makes US companies much more attractive,” a member of the management board of Siemens told the FT. “Our focus is on organic growth but at some stage the exchange rate starts to make it necessary to look very carefully at some American groups.”
Ekkehard Schulz, chief executive of Germany’s ThyssenKrupp, adds: “It makes US acquisitions cheaper. We are always on the lookout for any possibilities.”
For companies whose manufacturing facilities are in the eurozone but which often – or always – price their goods in dollars, buying the owners of US factories is one way of better aligning costs and income.
The transatlantic M&A benefits derived from the strong euro may not be equal to the corresponding cost of inflation suffered at home. It may not make up for the dwindling of profit streams from existing US subsidiaries after they are translated from dollars to euros. But it is at least partial compensation.
The low dollar has driven many eurozone companies to look at US deals they might otherwise not have looked at, says Rainer Krause, a partner at Hengeler Müller, one of Germany’s leading M&A law firms. “It is not only a matter of price but also of securing sourcing and production capabilities if the euro continues to be strong – and expensive,” he notes.
Robert Friedmann, chief executive of Würth, one of Germany’s biggest privately held industrial groups, says his company has done pretty much all it can internally to offset the impact of the weaker dollar on its operations, leaving one external option: “What we can do perhaps is buy companies in the US because they are cheap due to the exchange rate.”
For some deals, the benefits of using euro profits to fund US acquisitions can be diluted by a decision to take out dollar-denominated borrowings as a form of hedging for the deal.
In the Vivendi-Activision deal, however, the cash component of up to $2.4bn has come from existing euro-denominated reserves.
Italy’s Luxottica, the world’s largest maker and seller of high-end sunglasses, has already made a big saving on a US acquisition this year, announcing in June it was buying its rival Oakley for $2.1bn. By the time the deal closed last month, a weakening dollar had saved Luxottica €130m ($191m).
