What Is a Mega-Deal?
A mega-deal is a large and costly transaction between two corporations, often involving a merger of the two or the acquisition of one by the other. The term was invented by the business media to describe such a transaction. It comes from the Greek megas, meaning "great."
Although mergers and acquisitions are fairly common occurrences in modern business, the most startling mega-deals involve one or more large and well-known brand names. A mega-deal is big news because of its immediate interest to investors and, in many cases, its impact on consumers down the road.
The acquisition of Sprint USA by T-Mobile for $26 billion, which was finalized in 2020, is an example of a mega-deal. The historic (and eventually disastrous) merger of AOL and Time Warner in 2000 is another example.
- A mega-deal is a large transaction between companies, usually involving a merger of the two or the acquisition of one by the other.
- They are of immediate interest to investors and often has a big impact on consumers down the road.
- Mega-deals may help a company expand its customer base, eliminate a competitor, or increase its resources.
The mega-deal begins as a major business news story but can have repercussions for years down the road. The Sprint-T-Mobile mega-deal, for example, required formal reviews by both the Federal Communications Commission and the Federal Trade Commission.
Issues include whether the combined companies will have an unfair competitive advantage and could even represent a monopoly or near-monopoly in crucial telecommunications services in some regions of the U.S. Ten states moved to block the merger, arguing that higher prices for consumers will be the result.
It cost BB&T Corp. and Suntrust Bank $66 billion to create Truist Bank in 2019.
Why Make a Mega-Deal?
At first glance, mega-deals can sometimes seem odd. For example, the retail pharmacy chain CVS bought the health insurance giant Aetna for about $70 billion in a mega-deal that closed in late 2018. Both pharmacies and insurance companies are in the health business but other synergies are not immediately obvious.
SilverScript, a major Medicare Part D plan sponsor, was already a unit of CVS. The company explained in a press release that it planned to integrate additional health services in all of its store locations. It hoped to make health care local and accessible, simplify how consumers access health care, and lower costs.
A mega-deal may allow a company to expand its customer base, eliminate a competitor, or acquire valuable assets. It is often a way to add a complementary product or business line. It is often cited by the companies involved as a way to streamline operations by combining administrative departments and other overhead costs.
The reported purchase prices reported in mega-deals are always estimates and subject to change, as the price usually involves some combination of cash and stock or stock shares only.
Recent Examples of Mega-Deals
Some notable mega-deals include:
- Chevron sought to acquire Anadarko Petroleum in 2019, potentially valued at $47.5 billion. The move would have expanded Chevron's shale oil land gas production capabilities. In the end, competitor Occidental Petroleum outbid Chevron to acquire Anadarko for a mega-deal of $55 billion, more than 15% higher than Chevron's offer.
- Newmont Mining's acquisition of the Canadian company Goldcorp for $10 billion in 2019 created the world's largest gold producer.
- BB&T Corp. and Suntrust Bank became Truist Bank after their $66 billion mega-merger in 2019 created the sixth-largest U.S. bank.