This was a big year in terms of mergers and acquisitions activity (i.e., investment banker fees), and 2014 is looking to start off on an even bigger note. While this year we saw consolidation in tech and industrials, the coming year looks to be about media and telecom giants. It's been a few years in the making as the industries' juggernauts debate over how to steer their respective businesses in the face of technological disruption and market saturation, but things are about ready to pop. For investors, its crucial to resist playing M&A speculation, but at the same time keeping abreast of the developments could present opportunity for current and prospective shareholders. Here are two big deals to watch for in 2014:
Cable-industry forefather John Malone has been calling for consolidation for some time now, and it looks like 2014 may see the first fruits of that effort. Time Warner Cable (NYSE: TWC ) appears destined to be an acquisition or, at least, a merger. The No. 1 player in the industry, Comcast (NASDAQ: CMCSA ) , has shown interest on multiple occasions in either buying the company outright (likely with partners) or picking and choosing certain markets to buy that complement Comcast's existing portfolio.
On the other end is Malone-backed (and quarter-owned) Charter Communications (NASDAQ: CHTR ) . Investors can expect to see an offer pretty early on in 2014 as the company has already been rumored to be preparing a deal. Just this week, Liberty Media (Malone's vehicle) announced that it sees up to $700 million in potential synergies between Charter and Time Warner Cable. Time Warner's big shareholders are likely listening closely, and as content distributors' expenses continue to climb the name of the game becomes efficiency.
Charter and Time Warner Cable, along with Liberty Media, should feel the greatest shock from a potential deal. Remember, though, do not play speculation as deals frequently fall through at the last second.
Sprint (NYSE: S ) may be circling fellow telecom T-Mobile (NYSE: TMUS ) in the first half of 2014. Sprint would further its position as a leading mobile player (in terms of spectrum portfolio and subscriber count), but the deal looks likely to attract a close review from federal regulators. The FCC and DOJ are not shy of stepping in and preventing these mega-mergers, especially in the telecom industry.
Of course, the companies would negotiate with the government and attempt to reach a compromise, perhaps involving a third company in the deal that could benefit from the resources of either Sprint or T-Mobile.
For investors in either company, a successful merger or acquisition would be a long-term benefit to the business -- as long as the price is right and it's funded appropriately.
One more point to keep in mind is that while consolidation can aid in securing market share and widening a moat, it is not a substitute for pure innovation and organic growth. Every company mentioned here must still push hard to address the industry concerns and trends. Otherwise, the fee-making M&A activity only delays trouble.
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