Major mergers, such as the one announced Tuesday by Philipp Morris and Altria, are struggling to convince stock market investors, even as deals over $ 50 billion have broken a record since January, at $ 447 billion according to Refinitiv.

Investors remained skeptical when the talks were announced for a merger between Philip Morris and Altria.

With $ 200 billion in combined capitalization, Philip Morris and Altria can sign one of the largest mergers and acquisitions (M&A) mega deals. The momentum has never been better: six deals over $ 50 billion have been signed since January, representing a total of $ 447 billion, a record high in the period since the financial crisis, according to Refinitiv. At this rate, and in this segment of operations, 2019 could even beat the peak of 2015 (459 billion dollars in deals of more than 50 billion signed over the whole of this year).

Valuation risks

But Wall Street doubts. When the deal was announced on Tuesday, Philip Morris and Altria together lost nearly $ 13 billion in capitalization and the prices of the two tobacco companies reached two-year lows – before an upswing on Wednesday. Investors are worried about the same regulatory threats that led to the split of the two companies ten years earlier and the low potential for growth.

“We identify significant valuation risks for the shareholders of Philip Morris”, says analyst Callum Elliot at Alliance Bernstein in a note. Philipp Moris has also specified that at this stage of the negotiations, there was no guarantee that their merger would be completed. Same market reaction in June when the announcement of the merger between the two heavyweights of American aeronautics and defense Raytheon and United Technologies, whose two prices faltered. A decline that was fueled by criticism from activist William Ackman, pointing to the lack of strategic logic, and by billionaire Daniel Loeb. Ditto in the pharmacy where AbbVie suffered one of its worst days on the stock market when the announcement of the takeover of Allergan in return for a premium of 45% on the price of its target. To win the tanker Anadarko, Occidental Petroleum also had to significantly outbid with a premium of 57%.

Megadeals are just the tip of the iceberg. Investor doubts relate to mergers and acquisitions in general. Since January, and despite the effervescence of giant operations, M&A has fallen by more than 12% worldwide to 2.520 billion dollars. In a note, Goldman Sachs analysts believe M&A activity “Could decline in the next twelve months by 7%, weaker confidence of CEOs and consumers, greater political uncertainty, weak markets, and high level of market volatility and credit spreads impacting activity deals ”. “There is the feeling that at the turning point is the end of the M&A cycle”, also supports an analyst from Keeke Bruyette & Woods.

“Reasons to say ‘no’”

Reflection of these uncertainties, M&A pure players and main competitors of large diversified investment banks are suffering on the stock market. Moelis has lost more than 43% over the past year, Evercore 29%, PJT 31%, or even Greenhill more than 49%.

“The accommodative policies of central banks should normally fuel the flow of transactions. In fact, there are many reasons to end up saying ‘no’ to acquisitions or mergers, starting with trade tensions and regulatory uncertainties. The large global groups are encouraged as a priority to focus on their core business or to transform rather than to embark on acquisitions or mergers ”, explains Benoît d’Angelin, at the head of his own consultancy firm, and mandated among other things in recent months by Fiat Chrysler Automobiles (FCA) to negotiate a merger with Renault.