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COVID-19 hammers merger activity

Justin Ho Apr 1, 2020
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A sparsely populated Financial District in New York City due to COVID-19 on March 16. Spencer Platt/Getty Images
COVID-19

COVID-19 hammers merger activity

Justin Ho Apr 1, 2020
A sparsely populated Financial District in New York City due to COVID-19 on March 16. Spencer Platt/Getty Images
HTML EMBED:
COPY

Xerox announced Tuesday that it’s canceling its hostile takeover bid for HP, a deal that was five months in the making. The macroeconomic environment we’re in, Xerox said, is not conducive to the takeover any longer. That macroeconomic environment has placed a giant roadblock in front of corporate dealmaking around the world.

Mergers and acquisitions are bold and risky bets in the long-run. If you’re a CEO thinking about making such a deal, you want to be pretty confident about what the future holds, said Drew Pascarella, associate dean for MBA programs at Cornell’s business school.

“Everyone’s crystal ball on a good day is reasonably cloudy,” Pascarella said. “Today, with COVID, you just can’t see through it.”

And with stocks swinging up and down all the time now, it’s hard to figure out what a company is worth. Then there’s the question of getting financing for a deal, said Anil Shivdasani, professor of finance at the University of North Carolina.

“Banks are looking at what’s happening in the economy and are becoming much more cautious in making their lending decisions,” he said.

Global deal-making dropped 28% in the first quarter, according to Refinitiv Deals Intelligence. It’s down over 50% in the U.S.

But deals aren’t necessarily dead. Steven Davidoff Solomon, professor of law at UC Berkeley, said private equity firms and big corporations are sitting on a lot of cash right now — cash that could be used to pick up a distressed company.

“They are all circling right now, and they are going to come in to pick up the pieces,” he said.

Still, he says that’s not likely to happen for at least a few months. Most companies are reluctant to spend cash while the economy’s outlook is so uncertain.

“If you’re a CEO looking at the world right now, you’re not going to take the risk of an acquisition unless it’s incredibly opportunistic,” Solomon said, adding that if dealmaking picks up again, it’d be a sign that the economy is getting healthier.

COVID-19 Economy FAQs

So what’s up with “Zoom fatigue”?

It’s a real thing. The science backs it up — there’s new research from Stanford University. So why is it that the technology can be so draining? Jeremy Bailenson with Stanford’s Virtual Human Interaction Lab puts it this way: “It’s like being in an elevator where everyone in the elevator stopped and looked right at us for the entire elevator ride at close-up.” Bailenson said turning off self-view and shrinking down the video window can make interactions feel more natural and less emotionally taxing.

How are Americans spending their money these days?

Economists are predicting that pent-up demand for certain goods and services is going to burst out all over as more people get vaccinated. A lot of people had to drastically change their spending in the pandemic because they lost jobs or had their hours cut. But at the same time, most consumers “are still feeling secure or optimistic about their finances,” according to Candace Corlett, president of WSL Strategic Retail, which regularly surveys shoppers. A lot of people enjoy browsing in stores, especially after months of forced online shopping. And another area expecting a post-pandemic boost: travel.

What happened to all of the hazard pay essential workers were getting at the beginning of the pandemic?

Almost a year ago, when the pandemic began, essential workers were hailed as heroes. Back then, many companies gave hazard pay, an extra $2 or so per hour, for coming in to work. That quietly went away for most of them last summer. Without federal action, it’s mostly been up to local governments to create programs and mandates. They’ve helped compensate front-line workers, but they haven’t been perfect. “The solutions are small. They’re piecemeal,” said Molly Kinder at the Brookings Institution’s Metropolitan Policy Program. “You’re seeing these innovative pop-ups because we have failed overall to do something systematically.”

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