TheChek News Flow

Donald Trump has suggested that Apple will bring some manufacturing to the US, saying he has had conversations with chief executive Tim Cook abut the good it would do for the country.

The president-elect told Axios that he thinks Mr Cook has his “eyes open to” building “big plants” in the US.

“I really believe he loves this country and I think he’d like to do something major here,” he said. “I told him, I said, ‘Tim, it’s going to be a big achievement the day you start building some of your big plants in this country instead of other countries. And I think he’s got his eyes open to it.”

Apple relies on suppliers in Asia and across the world but last month there were reports that it had asked partners to exploring making iPhones in the US. Mr Cook was among the tech leaders who met with Mr Trump and his team last month.

Shares in Apple were flat in afternoon trading in New York.

Etihad chief defends strategy of buying international airlines

James Hogan fights back as group denies plans to take stake in Germany’s Lufthansa

The chief executive of Etihad Airways, James Hogan, has mounted a spirited defence of the Abu Dhabi carrier’s strategy of buying stakes in international airlines, despite “significant challenges” with some struggling airlines in Europe.

Mr Hogan was speaking at the Global Airfinance Conference in Dublin amid growing controversy over the carrier’s less successful investments, which have included stakes in Germany’s Air Berlin and Italy’s Alitalia.

Mr Hogan insisted the investments had had an “immediate impact” on the airline’s revenue side, delivering “hundreds of millions of dollars” in additional revenues and allowing Etihad to fill its connecting flights.

The airline also made it clear after his speech that, despite recent speculation, Etihad was not contemplating taking a stake in Germany’s Lufthansa.

Etihad is one of the three big Gulf carriers, along with Dubai’s Emirates and Qatar Airways, that have transformed long-haul aviation over the past 15 years. While Emirates has pursued scale and Qatar has joined the OneWorld alliance and built a stake in International Airlines Group, Etihad has taken investments in other airlines and used their networks to feed traffic to its long-haul business.

The strategy has suffered particular problems with Alitalia, the struggling Italian flag-carrier, and Air Berlin, Germany’s second-largest airline, both of which have required regular capital injections. Etihad recently participated in a complex series of deals with Lufthansa and Tui Group to lease some of Air Berlin’s aircraft to Lufthansa and to establish a new leisure airline with Tui that was widely seen as a rescue of the airline.

Mr Hogan said Etihad had believed its strategy would give it advantages over international alliances of airlines, such as the Star Alliance, where airlines have no stakes in each other.

“Because we had skin in the game, we could work on joint procurement and other business synergies which would save us — and our partners — hundreds of millions of dollars,” Mr Hogan said.

However, he accepted that the process of allowing the airlines’ managements to reshape them into profitable operations required a “longer-term view”.

“Jet Airways, Air Serbia, Air Seychelles, Virgin Australia and Etihad Regional have all used our capital investments to help structure their businesses into more efficient and profitable operations,” Mr Hogan said, listing a series of its investments.

Those businesses were already delivering a return, he said.

But, the company faced “greater challenges” with Air Berlin and Alitalia.

“Both are operating in very tough competitive environments, and need to address longstanding issues facing their businesses,” he said. “I believe Air Berlin’s strategy is now on track and Alitalia is finalising a business plan to address its issues.”

Etihad was committed to its “equity partner” strategy, Mr Hogan went on, adding that it delivered a “huge amount” to the business.

The company said afterwards that it was not looking at taking a stake in Lufthansa.

Andrew Charlton, an international aviation consultant, said Mr Hogan’s strategy had been controversial because international aviation rules limited the stakes Etihad could buy in airlines.

However, he went on, it was possible that, if Etihad held on long enough, the strategy might “come good”.

After the frenetic build up to a presidential election that dramatically belied expectations, North American M&A activity dwindled to its lowest December in five years.

The euphoria sparked by AT&T’s USD 108.7bn bid for Time Warner a few weeks before Hillary Clinton was widely forecast to win, was followed by anticlimax with just USD 72.3bn worth of deals, less than half the amount recorded a year earlier, according to Mergermarket data.

Still, underlying market conditions point to sustained activity in 2017, on the back of historically cheap financing, abundant cash and an anticipated loosening of regulations under President-elect Donald Trump’s administration that should augur well for domestic US activity in particular, dealmakers say.

“There’s a perfect storm of basic market fundamentals that are peaking,” says Hiter Harris of Harris Williams.

Both corporate and private equity acquirers will need to turn to M&A in 2017 to boost growth or attract new investors, adds Daniel Wolf of Kirkland & Ellis. “There’s a fundamental lack of organic growth in the US and around the world,” he says. “To move the needle, you have to do deals.”

Sectors likely to see activity include energy, which has recovered after two years in the doldrums, as well as healthcare, driven by the need for drug makers to restock pipelines, and technology.

Harris said he expects mid-market activity to be robust across the board, citing logistics, transportation, aerospace and defense, building products and consumer products among the areas to watch.

Shifting landscape

While the rationale for M&A remains strong, the landscape has shifted amid the political changes on both sides of the Atlantic.

Though uncertainty over Donald Trump’s policies is seen as something of a wild card, merger review policy under his administration is expected to be looser than under Obama, which could be a catalyst for more risky deals being attempted, dealmakers say.

“There’s the potential for the type of reform that came to the fore in the transition between Carter and Regan,” says Bilal Sayeed of McDermott, Will & Emery, who expects the "regulatory burden on companies’ abilities to grow aggressively” to be lifted, depending on Trump’s appointments to the Federal Trade Commission.

If this plays out, companies may re-attempt deals seen as anti-competitive in the past. There has been a revival of speculation, for instance, of a merger between wireless carriers T-Mobile and Sprint.

The prospect of US companies being given tax incentives to repatriate offshore cash is another potential regulatory trigger for deal activity. Companies such as Cisco and AbbVie have said they could use any repatriated cash to make acquisitions, as reported by this news service. Still, any changes are likely to take time to enact, argues Kirkland & Ellis’ Wolf.

Soaring stock valuations, meanwhile, will give those companies benefiting from premium valuations more currency to acquire those that aren’t. Accordingly, dealmakers say they expect a trend towards more mixed consideration deals.

Over the last three months, there have been 32 blended tender offers worth a total of USD 209.7bn, according to Mergermarket data. For all of 2016 there were 86 mixed consideration deals worth a total of USD 379.2bn compared to 97 deals worth USD 595.7bn in 2015.

Higher public market valuations also mean private equity firms are probably less likely to look to take listed companies private this year, especially as many companies are already following a private equity-style playbook under pressure from shareholder activists, Wolfe says.

In 2016 there were 33 such buyouts in 2016 worth a total of USD 55.3bn.

Inbound black box

Surging inbound deal value was a major driver of activity in 2016, with a record USD 450.5bn worth of deals.

Yet, against the background of increased regulatory scrutiny, these levels will be difficult to sustain.

Rampant Chinese outbound deal making, which more than doubled year-on-year to reach USD 206.1bn in total, was one of the stories of 2016.

Since then, the political climate on both sides of the Atlantic has taken a protectionist turn, creating a more hostile environment for Chinese acquirers that is leading many to focus more on organic growth for the foreseeable future, this news service recently reported.

Increasing scrutiny of Chinese outbound deals under the auspices of currency control are likely to put a further dampener on activity.

“Whereas before people felt [SAFE (State Administration of Foreign Exchange)] was predictable outcome-wise though the timing was unclear, now it’s become more of a black box,” says Wolfe.

Still, Chinese inbound M&A into the US remains less than a single percentage point of total deal value in 2016, according to Mergermarket data. At the same time, Chinese acquirers are often catalysts for M&A as their interest can put companies into play, one advisor said.

Last year the number one investor into the US was Canada, with Canadian companies shelling out USD 110.6bn for companies south of the border, predominantly for power and utilities assets. This trend could be short-lived, however, since the value of the Canadian dollar against the US dollar has since plunged to around USD 0.75.