Thomson Reuters
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Two big mergers are at risk of blowing up, and stock prices have taken a hit. They could put a dent in both hedge fund performance and bankers' paychecks.
Pfizer's megamerger with Allergan and the proposed merger of Halliburton and Baker Hughes are both at risk of being derailed by the US government.
The US Treasury Department on Monday tightened the rules around tax inversions, the type of transaction Pfizer is trying to pull off with Allergan.
Allergan - which fell around 15% on Tuesday - ranked number one in a list of stocks that matter to most to hedge funds put together by Goldman Sachs.
The list said that 80 funds had Allergan as one of their top ten positions.
Then there are the M&A fees that could go unpaid if the deal unravels. Fees on the deal were estimated at $236 million, according to Freeman & Co. If the deal collapses, the banks may get 10% of that.
Goldman Sachs, Centerview Partners, Guggenheim and Moelis are working for Pfizer, while JPMorgan and Morgan Stanley are working for Allergan.
There is a similar story at Baker Hughes. That stock fell 5% on Tuesday, after it was reported that the Justice Department is readying an antitrust lawsuit to block the merger with Halliburton.
ValueAct, which is facing a civil suit from the US Department of Justice over its investment in the stock, is a prominent investor.
The banks on that deal are Bank of America, Credit Suisse and Goldman Sachs. Those banks had been due to receive $110 million, according to filings, with the bulk of that sum contingent on a deal closing.
The Pfizer-Allergan and Halliburton-Baker Hughes deals may still come to fruition. Pfizer and Allergan could work out a new deal price, and Baker Hughes and Halliburton may find a way to divest more businesses than they initially planned.
But the two transactions highlight just how risky the M&A business has become, as regulators flex their muscles to hinder transactions that involve reducing taxes or competition.
The first quarter of 2016 saw $213.3 billion in withdrawn M&A, with Honeywell International's proposed $102.8 billion bid for United Technologies the fourth largest withdrawn deal on record, according to Dealogic.
Tread carefully.