[DanRath]

In a world where multi-billion dollar M&A flows are still largely absent, the news of a potential Ericsson-Nortel deal is noteworthy. Ericsson has entered into an asset purchase agreement to acquire the parts of the Carrier Networks division of Nortel for US$1.13bn in an all cash deal. Significant as it may be, the currency impact will likely be quite muted. Analysis of M&A inflows worth more than US$2.5bn indicated that the impact on USD/CAD peaks within four days following the announcement. Also, during 1999-2007, only 72% of the 37 announcements resulted in a discernable FX impact. The FX impact of announcement of less than US$1.5bn is much more ambiguous as “smaller” M&A flows are simply not large enough to have any material impact on CAD against the majors.

What about CAD/SEK? Although Ericsson is domiciled in Sweden, it does not necessary imply that Ericson will raise funds domestically to finance the deal. As is often the case with M&A deals, until the funding currency, sources of finance and methods of payments are known or are glaringly obvious, it remains a pure theoretical exercise to determine which currency pair will be impacted the most by the M&A deal. In 2006, one the large M&A deals involved a Swiss-based company buying a Canadian-based by raising funds in GBP.

Even including the Ericsson deal, the 4-week moving average of M&A flows remain muted compared to the hey days of 2006 and 2007.