Unfriendly takeover efforts grow in number, size

Corporate let's make a deal is increasingly becoming an unfriendly affair.

Monday, shares of Diebold dbd surged 61% on news United Technologies utx launched an unsolicited $3 billion takeover offer for the automated teller machine maker after two years of unsuccessful attempts at a merger.

Such so-called hostile buyout offers are gaining in popularity as corporate buyers lose their patience and are no longer willing to take no for an answer.

So far this year, there have been 13 hostile and unsolicited takeover offers, which is double last year and the most hostile bids this early in a year since the 19 in 1991, says Richard Peterson of Thomson Financial.

These aren't just little deals, either. Four of the 10 biggest offers this year are hostile, Peterson says, including Microsoft's msft $40.2 billion bid for Yahoo yhoo, and a private investor group's $3.2 billion offer for real estate investment trust Post Properties. All this while the dollar amount of U.S. merger activity is down 49% from a year ago, Dealogic says.

"You have a disconnect between buyers and sellers," says Bob Filek of PricewaterhouseCoopers. "You don't have willing sellers yet, but interest from buyers who see opportunities."

There are several reasons buyers are increasingly attempting to force the hands of unwilling sellers, including:

•Stock market troubles. Prices of buyout targets have fallen, often more than the targets realize, says John Babala, partner at law firm Dreier Stein Kahan Browne Woods George. Although the broad stock market recovered Monday after flirting with a new low for the year, the Dow Jones industrial average has lost 435 points in three days and is down 7.6% this year. "There are prime targets for hostile" deals, he says.

•Shareholder activism. Investors tired of waiting for a company to get its strategic plan together are seeking new management or a suitor they think can, says Bill Seabaugh of law firm Bryan Cave. Big investors are increasingly looking to hostile takeovers as a way to force out ineffective management, says Ric Marshall, chief analyst at corporate watchdog The Corporate Library. "Sometimes management needs to be shown the door," he says.

•Diminished access to loans. Companies sitting on piles of cash are free to go on a shopping spree, especially for companies that may need access to capital and can't borrow due to the credit crunch, says William Wexler, director at corporate advisory BBK. Costly debt has also taken private-equity firms out of the equation, says Thomas Christopher at law firm Kirkland & Ellis. Early last year, targets could find a white knight or better offer from private-equity firms. But the dollar volume of buyouts is down 85% this year as debt has become pricey, Dealogic says.

And that's why Christopher expects more hostile and unsolicited offers to come. "I absolutely think these will continue," he says.

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