Hostile M&A Deals: The trends

Posted on Friday, 9 October 2009. Filed under: Business History, Commentary, Mergers |

There’s been a lot of attention on hostile M&A deals since Kraft launched its unsolicited bid for Cadbury last month (September).  Nothing quite like chocolate to make the headlines — in fact so much so, that several journalists I’ve spoken to recently have said that they are completely tired of writing about that deal.

Because it was an unsolicited offer — bordering on being a hostile deal (which will ultimately depend on what develops) — I’ve been asked about whether this is a harbinger of things to come:  that is, will there be lots more hostile deals as the market recovers and what’s really been happening to hostile deals recently anyway.

Here’s the facts:

  1. Hostile (including unsolicited deals) are uncommon, despite the headlines they cause as they are, by their very nature, much more newsworthy than friendly deals.  Think back to Microsoft / Yahoo and all the column inches in newspapers that deal had!  In fact, these deals represent only 1.01% of all deals announced so far this year (that’s less than 80 deals year-to-date), which isn’t far off the average of the prior three years of 1.04%.
  2. If we annualise the number of deals to date in 2009, we get only about 100 for the full year — again on average with the prior three years which included some good years and one very poor one.  Still, 2008 had 127 hostile / unsolicited deal announcements, which was a recent high.
  3. Most of these deals never get to completion:  approximately 60% get withdrawn, and unsurprisingly last year was a recent high with 63% being withdrawn — most likely because of the market turmoil in the fourth quarter which is usually a very busy quarter for M&A deals.
  4. Despite all of the hype around the Kraft / Cadbury deal, it actually isn’t one of the largest.  If we look back over the past four years, the biggest hostile / unsolicited deals were (1) BHP Billiton with an offer of $188 billion for Rio Tinto, (2) RBS (together with Santander and Fortis) at $98 billion for ABN AMRO, (3) E on’s $82 billion bid for Endessa, (4) France Telecom’s offer of $47 billion for TeliaSonera and (5) Xstrada’s bid for Anglo American of $43 billion.  Then came Microsoft’s bid of $42 billion for Yahoo, so that one didn’t even make the top 5;  the Kraft / Cadbury offer is way down at 16.  By-the-way, of those top six bids, only one was ultimately completed and, as I said on Reuters TV yesterday, I am sure that Sir Fred Goodwin wishes he had withdrawn his bid as all the others did.

So what’s likely to happen now?  My view is that hostile bids (or at least unsolicited bids) will continue at this relatively low pace.  No big surprises there but still some interesting stories because hostility always makes for a nice headline.   But there just won’t be too many of them.  CEOs and boards seem to know (intuitively?) that these types of offers just have too many ways to fail.  Which is why, of course, most get withdrawn and why most take place in non-people businesses such as metal, mining and other extractive industries and in technology and industrials where assets are purchased, not so much the employees or management.

Then again, many of these offers may have been made with the full expectation that they would be rejected.  Making an offer can be a strategic signal to the market or even a way to destabilise a competitor.  But care must be taken, because the bidder can be affected in a bad way too.

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