DealZone

(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.

Clive Cowdery’s Resolution has won over shareholders of Friends Provident, agreeing to pay 1.86 billion pounds for the British life insurer. Here are some facts about the pair. Whether the move will lead to a wave of consolidation in the sector remains to be seen, though last week the head of rival Standard Life told Reuters that it had no plans to make any deals.

Other M&A news today includes:

The total value of distressed-debt deals totalled $84.4 billion this year, the Wall Street Journal said, almost double the figure last year. Here’s Reuters’ story.

Private equity fund Dubai International Capital and distressed debt investor Oaktree Capital have abandoned plans to team up to restructure the debts of German aluminium firm Almatis, the Financial Times said.

The 1980s revival continues. Music fans have been flocking to see the Human League and Spandau Ballet on their reunion tours. Now M&A aficionados can savour their own mini revival. Yes, it's the return of the Pac-Man bid.
Two mid-sized British insurers, Friends Provident and Resolution have revived this gambit, named after a mind-bogglingly dull computer game where the objective is to eat your pursuers rather than be eaten yourself. In M&A, this involves the target of a bid approach (in this case, Friends) turning on the bidder and launching an offer itself.
In the case of Resolution there was a certain logic in so doing. Resolution is effectively a cash shell company, which has opaque governance. Its nil premium share for share approach offered little to Friends other than the chance to hand over 10 percent of the combined company's profits to Resolution's management. The proposed nil premium counterbid made little sense (other than to eliminate the 10 percent profit share). But it did at least tease out a slightly more generous bid proposal from Resolution.
Pac-Man defences are rare in M&A -- and for good reason. They're wholly unconvincing. If you get a bid for your company, and think that the combination has merit, squabbling over who bids for whom seems to miss the point. At worst it smacks of management self interest.
This is not the only reason there have been very few Pac-Man defences. The bigger problem is that they are uniformly unsuccessful. The target never actually gets to gobble up the predator. It is 10 years since Elf Aquitaine's desperate  attempt to see off an ultimately successful bid by fellow French oil major Total. The same year, British regional brewer Marston's also used the defence against a bid from Wolverhampton and Dudley Breweries. It too failed.
That doesn't stop it from rearing its ugly head from time to time. Pac-Man defences were raised as a possibility for Rio Tinto  to turn the tables on BHP Billiton and more recently as a means for Anglo American to round on Xstrata. But generally that's all it is: talk.
The Resolution-Friends situation is an unusual one. Resolution is a cash company that is desperate to do a deal, while Friends rejected a 150 pence per share bid from J.C. Flowers last year. There are particular reasons they have ended up in a sort of death embrace. So while the Spandaus may be back in favour, the Pac-Man bid is likely to remain consigned to the archive.

Citigroup is eyeing a break-up or sale of its business in Germany as part of a global reorganization, sources familiar with the matter have told Reuters. Citi’s German unit, which makes most of its money from loans for everything from televisions to cars, contributed nearly 3 percent of the bank’s global pretax profit in 2006. Citi’s manager in Germany wrote to staff in March, saying the unit would not be sold, but he was replaced last week.

Lehman Brothers has been taking advantage of the Fed’s new borrowing window for investment banks, the Wall Street Journal reported, by using some of the same financial engineering methods that have brought so much chaos to the financial system. In a nutshell: Move $2.8 billion in unattractive debt into a new investment vehicle, get a AAA credit rating, and use as collateral to borrow much-needed cash from Uncle Sam. Fed officials had been worried that the new borrowing window might carry a stigma, but as it turns out, not so much.

U.S. buyout group J.C. Flowers is prepared to walk away from takeover target Friends Provident, frustrated at a lack of contact with the British insurer’s management. “There is no light at the end of the tunnel,” a source close to the matter told Reuters on Friday. Flowers has a regulatory deadline of April 30, by which time it must either make a firm takeover bid or walk away.