Fiat, Glaxo, EDF reinvent M&A

By Quentin Webb - Analysis

LONDON (Reuters) - The twinning of two big HIV-drug operations, EDF's nuclear dealings, and Fiat's audacious bid to forge a global carmaker show necessity is now the mother of invention in mergers and acquisitions (M&A).

Deprived of the huge bank loans that powered boom-year cash takeovers, companies are striking more complex deals that share future risks and benefits between both sides, or where know-how itself can be traded for an ownership stake.

These tie-ups take longer to agree and are harder for investors to decode. But they allow executives to be strategically bold without gorging on leverage, and offer some hope of a pickup in M&A, which has languished even as stock markets have grown more optimistic.

"To get deals done in this environment, you need to be creative," said Simon Dingemans, Managing Director, European M&A at Goldman Sachs.

"The common theme is risk-reduction, while still wanting to take advantage of the opportunities out there."

Andrew Witty, the GlaxoSmithKline Plc (GSK.L) veteran who became the British drugmaker's chief executive a year ago, epitomizes this approach.

Last month, Glaxo and U.S. peer Pfizer Inc (PFE.N) struck a deal to pool their HIV operations, including Glaxo's Combivir and Epzicom, into a joint venture that will hold nearly a fifth of the market for treatments against the virus.

Glaxo starts with 85 percent of the venture, but Pfizer's stake could reach 30.5 percent, depending on successes in drug development and sales.

Unveiling the deal, Witty said Glaxo was "not interested in a classic big piece of M&A," but instead was "very focused on bolt-on acquisitions or innovative deal structures which allow us to build more efficient business models."

He reprised that strategy this week, swapping a factory and eight medicines for a stake in Africa's biggest generic-drug maker, Aspen Pharmacare (APNJ.J), to expand Glaxo's reach in emerging markets.

FIREPOWER

The global financial crisis has taken a brutal toll on M&A: at $599.6 billion, worldwide announced deals in the first four months of the year were just 42 percent of the pre-crisis deals racked up in January-April 2007.

And although stocks have staged a dramatic recovery since early March and the economic gloom has lightened a shade, deal-making remains hamstrung by a shortage of bank debt and big disagreements over valuation.

Bankers say smarter deal structures can help sidestep these sticking points.

This week, after many months of negotiations, French power group EDF (EDF.PA) reached an multi-part deal to sell a stake in its British nuclear unit to Centrica Plc (CNA.L).