Transcript USA-Mexico Merger

Amexico?
Should the U.S. Merge With Mexico?
April 18th, 2016
Michael Perkins and Corey Sorrento
I. Public and Private Divergence
Public - Independence Fever
2014
Spain
2014 - 2016
45%
Basque
California
United States of
America
>
55%
Spain
2014 - 2016
Kurdistan
Scotland
United Kingdom September 8th, 2014
Catalonia
Nation-States Threatening to Break Apart
Iraq
2014 - 2016
Private - M&A Frenzy
1
2
3
4
Slow Global Growth
Cheap Cost of Capital
Looming Rate Hikes
Political Instability
Mega-Mergers
Announced transactions
2015: Record Year
Deal
Value
(US$bn)
$183.7
$120.3
Source: MergerMarket
58
9
$10bn>
$50bn>
Bidder
Company
Target
Company
USA
Belgium
Allergan
SABMiller
$81.2
Royal Dutch Netherl
Shell
ands
BG Group
$77.8
Charter
USA
Communicati
ons
Dow
USA
Time
Warner
Cable
DuPont
$77.0
Pfizer
AnheuserBusch
Bidder
Country
Target
Country
Ireland
United
Kingdo
m
United
Kingdo
m
USA
USA
II. M&A Amongst Countries
Mutually Beneficial U.S.-Mexico Merger
History Between U.S. and Mexico
Gadsden Purchase
Mexican-American War
•
•
•
Late 1840s
President Polk sends troops in Mexico’s refusal of an
American purchase of NM and CA
Treaty of Guadalupe-Hidalgo (1848)
U.S. paid $15m ($400m today) for: CA, NV, UT and parts of
NM, WY, AZ, CO and TX
Mexican nationals living in the new U.S. territory
predominantly became U.S. citizens but most lost their
land by force or fraud
1853 - President Franklin Pierce purchased 30,000 miles
along the Mesilla Valley -- runs from California to El Paso
$10m purchase
Marks latests adjustment of the border between U.S.
and Mexico
•
NAFTA
•
•
Source: Council on Foreign Relations
1994 - President Bill Clinton signs the North American
Free Trade Agreement (NAFTA)
Trilateral Agreement between US, Canada, &
Mexico
Pledge to eliminate tariffs over 15 years
Economists agree it has had measurable positive effects
on U.S and Mexican economies
Actual boost in the Mexican economy have fallen
short of expectations
Economics of the Merger
GDP
Population
Millions of people
Median Age
442
Mexico: 27.30 USA: 37.60
Trading Economics
Focus Economics
Hostile…? -- USD/MXN
Wall Street Journal
Index Mundi
U.S-Mexico Merger - Pros
❏ Rise in GDP
❏ Young / Vibrant Workforce*
Mexican Corporations
❏ Help pay into the social security for the ageing population
❏ Natural Resources to Exploit
❏ Mexican government dealing with entrenched interests
❏ U.S technological advantages
❏ Mexican Auto Industry
❏ Brings Manufacturing back to U.S
❏ Solves Immigration Problem*
❏ Jim Cramer:
❏ “Look, that IPO, I want everyone in and I’m willing to pay 20% above the price talk.
Because I think people are short-selling Mexico because they think it is just a place
where you just have lawlessness. They have not been to Mexico, they don’t realize
the immediate premium this deal’s gonna go to.”
Source: Freakonomics
U.S-Mexico Merger - Cons
❏ Massive transfer payments and subsidies to Mexico
❏ Median family income in Mexico is below $5,000/year
❏ 60 million people making less than $5,000/year
❏ ‘Cost Savings’ in this context would mean less money for US citizens
❏ Young / Vibrant Workforce*
❏ Importing of the deflation of the labor force
❏ What happens to elderly in Mexico?
❏ Interest Rate differential
❏ Mex: 3.75%
❏ US: .25% - .50%
❏ Solves Immigration Problem*
❏ Redefines it as not being an immigration problem
❏ Political Integration
❏ Must be politically willing to unify
❏ Will the inclusive or extractive part dominate?
❏ Cultural Integration
Source: Freakonomics, Trading Economics
Mexican Interest Rates
III. Results of Previous M&A
Amongst Countries /
Alternative Options
Historical Mergers
East-West Germany
❏ Costly
❏ More than $1 trillion in subsidy from West Germany
to East Germany
❏ Massive Labor Mobility
❏ 10M people working in East Germany during the
unification
❏ 5M people working in East Germany today
❏ Political Interest
❏ Political & National clammer to unify nations
❏ Result:
❏ In the long-run there is a more pure economic
system in place
West Germany
$1 Trillion
Source: Freakonomics
North-South Italy
East Germany
5 Million Workers
Alternative Options
Food for Thought
❏ IF the U.S-Mexico merger went through..
❏ World Cup implications?
❏ U.S-Canadian Merger?
❏ North American Union?
❏ U.S / Canada / Mexico
Questions?