Hostilities resume

December 1, 2009

wwwreuterscomboxing1(Acquisitions Monthly) The past year has seen the return of the hostile bid approach, requiring advisers to deploy their full range of defensive skills to fend off such opportunistic offers, or force the bidders to raise their price.

Finding the right balance between those two goals can be notoriously tricky. In theory, National Express defended itself successfully from a series of approaches this year, initially from transport rival First Group then from private equity group CVC in conjunction with major shareholder the Cosmen family and latterly Stagecoach.

However, this victory looks Pyrrhic. The company’s share price is 25% below the high point it reached during the offer period. Added to that, the board also now faces a disgruntled shareholder base. Hedge funds are seeking quick profits while its largest investor is at strategic odds with the directors and unwilling to support a rights issue.

That is far from ideal. A better outcome has transpired for Anglo American after rival miner Xstrata suggested a merger of equals in late June. Since the latter decided in mid-October not to submit a formal proposal, after a prompt from the Takeover Panel, Anglo’s shares have risen 17%. The company also remains independent.

In a sense, Anglo American was in a strong position. Xstrata’s nil-premium offer was not particularly compelling and Anglo had key South African shareholders that were never likely to support an alternative proposal.

Nevertheless, the opportunistic approach did force investors to assess the relative merits of the two companies’ management. On this occasion, Anglo and its advisers were successful in persuading them to back chief executive Cynthia Carroll’s existing plans rather than those of Xstrata’s Mick Davis. New chairman Sir John Parker was instrumental in this campaign.

That said, Xstrata or another predator could return with a fresh approach next April under the Panel rules.

Long-term siege

One company that succumbed to a long-term siege this year was Friends Provident. The life insurer eventually agreed to be taken over for £1.86bn more than 2-1/2 years after Clive Cowdery first approached the FTSE 100 company.

Back then, Cowdery was running his first Resolution vehicle, whose first approach prompted Friends to undertake a strategic review. It then rejected a tentative cash offer at 150p a share from financial investor JC Flowers.

This time round, it accepted the new Resolution’s much lower share offer, with a cash alternative, only a month after the approach. That might seem an indecently quick courtship but Friends’ shareholders, many of whom were also Resolution investors, saw that it might be better to be part of a consolidating vehicle at the start of that process.

Venture Production resisted far longer the overtures of integrated energy group Centrica. These effectively started in mid-March, when the latter said it had acquired a 22% stake at 725p a share. Three months later, Venture obtained a “put up or shut up” order from the Panel.

But it was only in late August, when Centrica obtained a majority of the shares, eventually paying 845p each, that Venture recommended the £1.3bn approach. Theoretically, this could be construed as a failure as Venture failed to remain independent but at least the final take-out price was 88% above Venture’s undisturbed share price earlier this year.

A similarly positive achievement was obtained by professional education provider BPP after Carlyle-backed Apollo Global indicated interest last April. Just over a month later, the company managed to obtain a declaration that, under Rule 2.5, Apollo would make a £303m cash offer at 620p a share, subject to due diligence, representing a 70% premium.

BPP had resisted an offer at a marginally higher price two years previously but in the current environment this new approach was hard for shareholders to turn down, as the board realised.

Continuing to resist

At the time of writing, Cadbury continues to resist the first formal offer at 727p a share from Kraft. To reach a successful conclusion, this looks likely to see the UK chocolate company succumb, but only at a significantly higher price than the current £9.9bn. Rival bidders, such as Hershey, seem to be helping this process.

Elsewhere, Dutch supermarket chain Super de Boer managed most successfully to find a rival bidder, Sperwer. The latter’s higher bid forced the retailer’s original suitor Jumbo to raise its offer 15% to a knockout level of €553m.

Other interesting situations have involved two exclusive parties. For example, Lloyds has resisted entering the UK’s asset protection scheme, as that would have seen the UK government take majority control of the bank by default. And VW has managed to turn the tables on Porsche and end up taking over what is effectively its founding company.

And, although not a European deal, the three-way battle among fertiliser makers Agrium, CF Industries, and Terra also shows how one hostile situation can provoke another. In another complex tussle, derivatives clearing house LCH.Clearnet also finally fended off a series of bidders.

-Read more from Acquisitions Monthly here.

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