Trump makes investment banking fees uncertain again

By Liana B. Baker and Carl O'Donnell

(Reuters) - President Donald Trump's dramatic intervention in Singapore-based Broadcom Ltd's $117 billion hostile bid for U.S. semiconductor peer Qualcomm Inc is the latest reminder to investment bankers not to take lucrative fees on transformative mergers for granted under his administration.

Seven investment banks that were backing Broadcom's bid for Qualcomm, the largest acquisition ever attempted in the technology sector, stand to lose out on fees as a result of Trump's order on Monday prohibiting the deal due to national security concerns.

"Bankers will be sceptical about cross-border deals that involve technology or data that could have implications for national security or for America's competitive position in key industries," said Erik Gordon, a professor at the University of Michigan's Ross School of Business.

 

Broadcom has disclosed its financial advisers as Moelis & Co , Citigroup , Morgan Stanley , JPMorgan Chase & Co , Bank of America Corp , Deutsche Bank AG and Wells Fargo & Co . They stood to receive an estimated $135 million if the deal had gone ahead, according to Freeman Consulting Services.

This is not the first time Trump's administration has put investment banking fees in jeopardy. The U.S. Justice Department filed a lawsuit in November to stop AT&T Inc , from buying HBO and CNN owner Time Warner Inc for $85 billion, citing antitrust concerns.

If that deal closes, AT&T's adviser, Perella Weinberg Partners, will receive an estimated $80 million, Freeman said, while Time Warner's advisers, Allen & Co, Citigroup Inc and Morgan Stanley , will receive $140 million, according to regulatory filings.

To be sure, the Trump administration's overall track record is not hostile to mergers. Deal activity continues to be robust, with U.S. merger and acquisition volumes reaching $389 billion so far this year, compared with $236.5 billion in the same period a year ago, as companies have been emboldened by U.S. tax reform to pursue big deals.

What is more, banks typically do receive some small portion of the full fees if deals fall through. In the case of Broadcom, the banks could now receive an estimated $20 million, according to Freeman.

However, the high-profile dealmaking casualties illustrate how Trump's pro-business rhetoric has not always translated into smooth sailing for the regulatory approval of deals.

Investment bankers' nerves are about to be tested further, as more transformative deals make their way through the regulatory review process. Walt Disney Co's $52.4 billion acquisition of assets from Twenty-First Century Fox Inc , CVS Health Corp's $69 billion deal to buy health insurer Aetna Inc and U.S. health insurer Cigna Corp's $52 billion agreement to buy pharmacy benefits manager Express Scripts Holding Co will be subjected to intense regulatory scrutiny later this year.

(Reporting by Liana B. Baker and Carl O'Donnell in New York; Editing by Jonathan Oatis)