2 major European mergers just collapsed - Deutsche Bank-Commerzbank talks flopped and Walmart's $9 billion UK supermarket deal was blocked
- Two billion-dollar European mergers collapsed on Thursday after Deutsche Bank and Commerzbank's talks fell through, and UK competition regulators rejected Sainsbury's planned takeover of Walmart-owned Asda.
- The German banks held formal discussions for six weeks, but investors questioned the deal's financing and rationale, and labor unions opposed the estimated 30,000 job cuts, according to the Wall Street Journal.
- UK watchdogs argued the £7.3 billion grocery deal would lead to higher prices, poorer quality and variety of products, and longer checkout lines.
- Watch Deutsche Bank, Commerzbank, and Sainsbury's trade live.
Two billion-dollar European mergers collapsed on Thursday after Deutsche Bank and Commerzbank's talks fell through, and Sainsbury's planned takeover of Walmart-owned Asda was rejected by UK competition regulators.
The news comes as European mergers and acquisitions activity remains muted. Deals were down 60% at $81 billion in early March - a six-year low - according to analysis from Refinitiv, cited by City AM.
Deutsche Bank and Commerzbank
The German banks had been in formal talks for the past six weeks to create a lender with $2 trillion in assets and 140,000 employees, according to the Financial Times. However, investors were concerned about the costs of a deal and doubted whether it would address growth and profitability problems, and labor unions were opposed to the estimated 30,000 job cuts, according to the Wall Street Journal.
Deutsche Bank remains embroiled in a money-laundering scandal at Danske Bank. US lawmakers are also scrutinizing an estimated $2 billion in loans it made to Donald Trump before he became president.
"A combination with Deutsche Bank would not have created sufficient benefits to offset the additional execution risks, restructuring costs, and capital requirements associated with such a large-scale integration," Commerzbank wrote in a press release announcing the end of talks.
Shares in Deutsche Bank rose 3% on the news, while Commerzbank's stock slid 2%, indicating investors had mixed feelings about the merger.
Sainsbury's and Asda
Sainsbury's and Asda struck a £7.3 billion ($9.4 billion) deal last year to create the UK's largest supermarket. The companies pledged to pass on cost savings in the form of £1 billion in annual price cuts for customers, according to Reuters. The tie-up promised to help the pair weather mounting competition from German discounters Aldi and Lidl.
However, the Competition and Markets Authority (CMA) has blocked the tie-up, arguing it would result in higher prices in stores, online, and at the gas pump, poorer quality and variety of products, and a worse shopping experience.
The decision sent Sainsbury's stock down 5% to its lowest level in nearly 25 years.
"The specific reason for wanting to merge was to lower prices for customers," Sainsbury's CEO Mike Coupe said in a statement.
"The CMA's conclusion that we would increase prices post-merger ignores the dynamic and highly competitive nature of the UK grocery market. The CMA is today effectively taking £1 billion out of customers' pockets."