Fantasy mergers and acquisitions could become reality if $1.3 trillion war chest is deployed

By:
Duncan Kerr
Published on:

Ford to buy BMW? Coca-Cola to buy Nestlé? GE to buy Siemens? News Corporation to buy Pearson? Just some of the potential acquisitions US companies could make from their $1.3 trillion cash war chest, according to new research.

A report from equity and quantitative strategists at Bank of America Merrill Lynch outlined the possibility of companies such as Ford, Coca-Cola and GE snapping up their industry peers in Europe, fuelled by more than a trillion dollars of cash these S&P 500 companies have at their disposal, the bulk of which is trapped in overseas operations.

 S&P 500 Non-Fin Corp Cash

These companies could repatriate their overseas cash, but they are dissuaded from doing so by the US government’s penal tax rates on bringing cash home, which can be as high as 35% of profits. 

And so "to circumvent the tax hit, US companies have been seeking acquisitions in regions where cash balances reside", says Obe Ejikeme, equity and quant strategist at BAML in London. 

He adds that with corporate tax rates across Europe generally much lower than those in the US, the incentive to invest trapped cash in the "lower tax regions of Europe is high".

Europe corp tax rates versus US 
 Source: BAML

Europe is the US’s biggest partner in cross-border deals – more than 50% of all such transactions during the past 20 years have involved European companies, says BAML.

And if US companies are to go hunting for European targets, BAML says there are 61 companies in the region that could be in their cross-hairs. A selection of those are found in the table below. 

Possible European targets of US peers 
 Source: BAML