Mergers & Acquisitions
Hostile Takeover Bids for
Big Firms Across Industries Make a Comeback
June 12, 2014 8:25 pm
Christopher Furlong/Getty Images
Pfizer made an $119 billion hostile
bid for AstraZeneca, a British rival, but abandoned the effort
Endurance Specialty Holdings’ offer for
Aspen Insurance Holdings in April did
not get much attention from the broader business world.
takeover effort, now in its third month, pointed to a change on Wall Street
today: Hostile deal making is back. Endurance, a Bermuda-based insurance
group led by John R. Charman, tried to negotiate a friendly deal with Aspen.
But after months of private approaches that Aspen rejected, Endurance went
public in April with an unsolicited offer.
“We felt we
didn’t have any other choice,” Endurance’s chief financial officer, Michael
J. McGuire, said in an interview. “All along, we have been trying to engage
in a friendly negotiated transaction. We were very committed to giving them
an opportunity to engage in private. But at each stage of the game, they
refused to engage at all.”
Johnny Green/Press Association,
via Associated Press
Endurance Specialty Holdings, an
insurer led by John R. Charman, tried to negotiate a friendly
acquisition of Aspen Holdings. But when that failed, it made a
Endurance, which is waging a proxy fight to replace the Aspen board, has
joined a list of prominent bidders making unwelcome offers for big companies
Pfizer’s $119 billion proposal to
acquire AstraZeneca was unsolicited.
Valeant Pharmaceuticals is waging a $53
billion hostile effort to take over
Allergan. And several bidding wars have
broken out over targets that never put up a “For Sale” sign.
much more comfortable considering unilateral transactions,” said Jim Head,
co-chief of mergers and acquisitions for the Americas at
Morgan Stanley. “The reputational cost
of doing it seems to be lower than it ever was.”
unsolicited deal activity is up sharply this year, according to
Thomson Reuters. Even excluding
Pfizer’s withdrawn bid for AstraZeneca, nearly $100 billion in hostile
offers have been made, accounting for 7 percent of global offer volume. That
is the highest amount since the deal boom of 2007, and it is occurring as
broader deal volumes are soaring.
driving the increase in hostile activity is greater confidence in the
boardroom. With the general economic outlook relatively stable, stock prices
riding high and growth in the United States steady, executives are more
willing to pursue acquisitions they have long considered.
however, are similarly bullish, making it easy to spurn suitors.
Allergan formally rejected a $53 billion offer from Valeant Pharmaceuticals.
In doing so, it said Valeant’s bid “substantially undervalues” the company,
using a common phrase.
Time Warner Cable said an acquisition
Charter Communications “substantially
undervalues” the company.
Jos. A. Bank Clothiers rejected a bid
Men’s Wearhouse, it used the same
phrase. “We continue to believe that your offer to acquire Jos. A. Bank
substantially undervalues our company and that your proposal is not in the
best interests of our stockholders,” the Jos. A. Bank board wrote in a
letter to Men’s Wearhouse.
posturing is not always a successful defense, though it can drive up the
price. In the case of Jos. A. Bank, the company was ultimately sold to Men’s
Wearhouse. Charter Communications lost to
Comcast, which ultimately agreed to
acquire Time Warner Cable.
corporate governance have also made it easier for companies to make hostile
companies have board members with staggered terms today, so shareholders can
vote out an entire slate of directors at once if the directors are seen as
entrenched. Poison pills, which prevent outside shareholders from attaining
large positions, are less common. And the concentration of big company stock
in the hands of a small number of large, institutional investors has made it
easier for bidders to win shareholder support.
willing to assess jumping announced deals for prized assets, and the
technology has made it easier,” Mr. Head of Morgan Stanley said.
The rise of
shareholder activism has also been influential. In some ways, the threat of
activists has replaced the threat of hostile deal making. Companies now
prepare for activist investors as they once did for hostile bidders.
suggest that activists and hostile bidders are willing to work together.
William A. Ackman, the chief executive of the hedge fund Pershing Square
Capital Management, is working with Valeant in its effort to acquire
Allergan, setting a potential precedent for deals to come.
And with the
increase in hostile activity, even
private equity firms are being drawn
into the fray.
Kohlberg Kravis Roberts has made an
unsolicited $3 billion offer for Treasury Wine Estates, an Australian
vintner. Treasury rejected the offer, but its stock is up, signaling
investors’ belief that KKR will raise its bid.
cases, unsolicited deals are leading to bidding wars. On Monday, Tyson
prevailed over Pilgrim’s Pride in a bidding war for
year, Time Warner Cable resisted engaging in deal talks with Charter, but
wound up striking a friendly deal with Comcast in February. Bidding wars
this year have produced deals worth about $147 billion, the highest amount
since before the financial crisis, according to Thomson Reuters.
on hostile deal making remain. Such efforts require a commitment of
resources and the willingness to engage in a war of words with a reluctant
target, all without any guarantee of success.
never been something that anyone does lightly,” said Antonio Weiss, Lazard’s
global head of investment banking. “You cannot try on a hostile bid and see
how it goes.”
regulatory environment may also be playing a role in limiting the number of
hostile deals. Many hostile deals are horizontal mergers, with competitors
taking over one another. Such deals often face scrutiny from antitrust
regulators, making a hostile approach that much riskier.
exposing your strategy to the public without knowing you can carry through
with it,” Mr. Weiss said.
investment bankers predict an increase in hostile activity.
be the easiest time on earth to win a hostile,” said one senior banker who
declined to be named because he was involved in several hostile deals.
In the case
of Endurance, the company said it was willing to follow through with efforts
to replace the Aspen board if necessary. “We’re not shy about driving hard
to deliver shareholder value,” Mr. McGuire said.
A version of this article appears in print on
06/13/2014, on page B1 of the NewYork edition with the headline: Hostile
Takeover Bids for Big Firms Across Industries Make a Comeback.
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