Never a better time for hostile takeovers
Acquiring businesses no longer too concerned about stigma of failed attempts
New York: Nearly $108 billion in potential deals were rejected over the weekend amid a boom in US hostile takeover attempts not seen since before the financial crisis.
Over the weekend, Cigna, the US health care insurer, rebuffed a $54 billion offer from larger rival Anthem, while Williams, the gas pipeline operator, turned down a $53 billion offer from Energy Transfer, a similar sized competitor. The rejections mean the number of hostile deals launched by US companies since the start of 2015 has doubled since the same period last year, from 20 to 40, according to Thomson Reuters data.
The increase comes at a time when deal data are being driven by a clutch of attempted and completed megadeals, as large corporates seek to take advantage of cheap funding to tighten their grasp on their sectors. Overall deal activity is up 43 per cent with $841 billion worth of transactions announced in 2015, the highest activity since 2007, the data shows.
Senior bankers said that the stigma of carrying out an unsolicited takeover bid has diminished as some shareholders push cash-rich companies to create value via deals rather than doing more share buy-backs. “Back in the day [pre-financial crisis] if a company went hostile it had to win or its stock would suffer. Now the stigma has gone,” said Gregg Lemkau, global co-head of mergers and acquisitions at Goldman Sachs.
“Now buyers are being pushed by their shareholders to make bold approaches that will help their company grow and if they fail because the seller requested an unreasonable premium it’s not a tragedy,” he said.
Lemkau added shareholders of the acquiring companies are more tolerant of failed bids because they want boards to walk away from deals that become too expensive to be justified.
At the same time that buyers are becoming more aggressive, boards of target companies are more willing to take the chance of holding out for better offers given the current strength of equity markets.
“Targets are holding out because they want to get a better deal and the strong equity market gives them the power to ask for more,” said Jim Head, co-head of M&A in the Americas at Morgan Stanley.
Last weekend’s events follow a string of other large contentious takeover battles, including Monsanto’s $45 billion bid to win control of Syngenta, the Swiss agricultural chemicals group, and Teva’s $40 billion offer to secure rival generic drugmaker Mylan.
“Battles are becoming more hostile because nobody wants to be left alone with nobody else to consolidate,” said Head. “That’s why we are seeing a lot of unsolicited bids.”
Cheap financing has as been an enormous incentive to strike deals now, said Chris Ventresca, global co-head of M&A at JPMorgan. --“A company won’t buy just because the rates are low, but if there is a target they are interested in, they would rather do a deal now than later,” he said. “The economics are currently very compelling.”
— Financial Times
