By Sam Weisberg
For radically different reasons, international megadeals will become increasingly difficult in the automotive space no matter who wins the U.S. presidential race.
Large deals across different sectors have already come under heavy antitrust scrutiny during President Barack Obama’s administration—a scrutiny that Democratic candidate Hillary Clinton is expected to continue. Theodore O’Neill, a senior research analyst at Ascendiant Capital Markets, points to last April’s cancellation of the merger between chip maker equipment giants Applied Materials and Tokyo Electron due to Department of Justice opposition. And in the auto space itself, Clinton publicly castigated the tax motivation behind the $14 billion Johnson Controls-Tyco merger that allowed the company to relocate to Ireland. The deal was completed in September.
While Republican candidate Donald Trump doesn’t seem to care less about potential monopolies arising from large mergers, he may oppose international deals of this nature, given his stated devotion to keeping auto manufacturing jobs in the US. That very sentiment is making the auto sector, which relies on cheaper labor overseas for manufacturing, rather uncertain, according to one auto industry banker.
O’Neill says that Trump will not likely persist, however, in blocking large international deals, once he “realizes that’s not economical.“
As for middle or small-market M&A transactions involving, for instance, automotive suppliers, Clinton is not anticipated to be as vigilant with regard to antitrust matters as she would be for megadeals. And Trump will find it difficult to block deals in which it is necessary to send some jobs overseas.
“If you’re, say, a car seat manufacturer, you can’t do that in one factory, you have to scatter throughout the world,” says O’Neill.
The auto banker says Trump would be likely to push to keep manufacturers in Michigan or other states, which would hurt original equipment manufacturers (OEMs) who want the ability to move production to lower-cost countries.
Jeff Windau, a senior equity analyst at Edward Jones, says he doesn’t see M&A in the auto sector being impacted under either candidate. M&A will continue to be driven by the need to meet consumer demand as well as safety requirements, and acquisitions of in-demand technologies such as those related to autonomous or electric cars will persist.
On a day-to-day level, giant OEMs like Ford and General Motors, as well as their suppliers, may benefit most from a Hillary Clinton win as she is expected to continue Obama’s auto industry-friendly policies, according to the auto banker. Clinton lauded Obama’s success with restoring the auto sector on her web site in January, noting that the industry had its “best year ever.”
Obama supported the auto sector bailouts in 2009, and the automakers have done well under his administration, so there may be a sense of stability with Clinton, the banker says. The $63.4 billion government bailout of GM and Chrysler inadvertently helped Ford, which, though it did not accept bailout money, ultimately benefited from the federal aid’s rescuing of auto parts suppliers servicing Ford.
In 2015, the auto industry sold 17.5 million lightweight vehicles, up from a low of 10 million in 2009.
However, one disadvantage for legacy emissions products makers is that the EPA’s demands for cleaner auto mileage and emissions standards could be stricter under a Clinton presidency, notes O’Neill. While Effraim Levy, a senior equity analyst at CFRA Research, agrees, he believes tougher emissions regulations will actually benefit auto parts groups such as Illinois-based Tenneco, which specializes in clean air performance products.
Sam Weisberg is deputy industrials editor for Mergermarket and Dealreporter. He can be reached at Sam.Weisberg@mergermarket.com.
