In the first two entries on this myth, we looked at a number of issues related to oil and future exploration as well as the power of fishing as a national industry. In this piece, we look at antitrust and other matters.
Anthem (ANTM) and Cigna (CI) found themselves under the burn of the US government magnifying glass. The proposed acquisition was blocked on an antitrust basis. The government has been adrift in still waters on monopolies since the 1982 AT&T (T) breakup. Antitrust scrutiny has also been lax. Consider some of the mega mergers and acquisitions that have gone through: Last year, AT&T – the subject of the 1982 breakup – acquired Time Warner (TWC) for $85.4 billion, ranking as the largest M&A transaction of 2016. British American Tobacco (BTI) upped its Reynolds American (RAI) stake by $58 billion. Qualcomm’s (QCOM) $47 billion acquisition of NXP Semiconductors (NXPI) implies huge market hegemony of the combined company.
Does Size Always Matter?
So why the blockage of Anthem/Cigna? Market watchers will note that this came a month after regulators blocked Aetna (AEI) from acquiring Humana (HUM). Sticking with the notion that antitrust means potential harm to the public, the fear of massive price increases for health insurance outranks numerous budding threats, such as
- Control of Internet, entertainment and communications
- An operating system monopoly
- Pharmaceutical R&D dominion
- Worldwide control of liquor and cigarettes
On top of this, Anthem and Cigna claimed the nuptials would achieve greater efficiency – a major reason for any acquisition, and the motive behind many airline mergers. These include American (AAL) combining with US Airways, $17 billion, and Delta (DAL) tying the knot with Northwest for $3 billion. This leads to the conclusion that in health insurance, a palpable fear holds that fewer national options push the transaction from possible to probable in public injury. This may be a carryover from the Obama Administration and an action designed by those still in office to protect Obamacare. Even so, the proposed deal will probably not take place. It is unlikely that the new administration, which pledges to reduce regulation, will undo this federal action.
While fear of monopoly has disappeared in the US, the fear of price gouging runs deep. Greater efficiency sinks in the face of possible rising prices especially in areas where the government holds a stake. This puts the US in a peculiar spot compared to Europe, which is touchier about monopolies and antitrust. For example, Microsoft (MSFT) has operated more freely in the US than in Europe, where many proposed mergers and acquisitions fall into the dust bin.
Treasure Hunting, Anyone? How About Fish Finding?
Deep waters offer additional business opportunities. A growing gang of modern sportsmen seek buried treasure, not with pirate crews, but with ships and devices designed to look on the bottom of the ocean. Odyssey Marine Exploration (OMEX) specializes in deep sea treasure hunting. Investors may scoff at this weak alternative to golf, but a few fortunate treasure hunters actually strike it rich. For example, former fugitive Tommy Thompson reeled in $50 million for the gold coins he found in the still waters surrounding the shipwrecked S.S. America, which sank in 1857. If only Long John Silver had ben born a few centuries later!
The fish on the bottom of the ocean adhere to the Still Waters Run Deep myth. Enter the fish finder industry. Many brands help modern fishermen rely on something more than luck: Humminbird, owned by Johnson Outdoors (JOUT), and Lowrance, owned by Navico, which is privately held.
Let’s Not Forget Shallow Waters…
The myth has allowed us to look at treasures related to water. Water itself is a treasure. Arizona is at risk of going dry in six years according to Smithsonian.com. New rivers have not made the list of infrastructure projects yet. Innovative water supply would prove a welcome guest to this rapidly growing but parched region. Trucking in water from places with deeper rivers and lakes has been suggested.
This review of the myth would not be complete without a mention of the explosion of hot tubs and spas – a fancy name for hot tubs – in evidence across the country. New homes commonly feature hot tubs and older homes can acquire a unit easily. Renovations frequently feature an upgrade of bath and shower. Kohler, the faucet king, employs 32,000 people. The modern faucet requires a great deal of hot water, spraying water from numerous directions. This means steady work for plumbers. The love of hot water is directly responsible for the success of Jacuzzi (JJZ), best known hot tub brand, which is found in more than 900 Lowe’s (LOW) stores. Home Depot (HD) offers several brands.
Overall, this myth has proven quite sturdy. Still waters literally hold great wealth including oil and fish. Water itself is a precious commodity. The US government swims in still waters until it decides to make a great marlin leap when it senses an antitrust shark attacking from the deep.
Next month, the Myth Buster will consider a new set of financial challenges.
____________________________________________________________________________________________________________________________________Michael McTague, Ph.D. is Executive Vice President at Able Global Partners in New York, a private equity firm.