Hostile deals in tech just don’t work
Broadcom extended its tender offer for Emulex shares yet again this morning, after less than 3 percent of shareholders turned in their shares to avail of the hostile, $764 million buyout offer. If anyone’s wondering which way this deal is headed, maybe a look at the fate of unwelcome tech bids in recent memory will provide a clue. In no particular order:
- Microsoft-Yahoo: Microsoft kicked off 2008 with one of the tech industry’s biggest buyout offers — its unsolicited $44.6 billion bid for Yahoo. It even raised it to $47.5 billion before pulling away because Yahoo just didn’t want to sell.
- Electronic Arts-Take Two: EA offered about $2 billion to buy its rival, Grand Theft Auto videogame publisher Take Two and made a tender offer that it extended a few times before dropping the bid.
- Cadence-Mentor: Cadence offered $1.5 billion, unsolicited, to buy Mentor Graphics, and then withdrew its bid citing difficulty in financing.
- Vishay-IRF: Vishay Intertechnology withdrew its $1.7 billion bid for International Rectifier in October, saying the pursuit was futile given IRF’s refusal to engage in talks.
- Samsung Electronics-SanDisk: The Korean electronics giant offered $5.9 billion to buy SanDisk, but the flash memory maker wanted much more. Samsung eventually dropped its pursuit, citing the economy.
- Microchip and ON Semiconductor-Atmel: Chipmakers Microchip and ON Semi made a joint $2.3 billion bid for Atmel, which it rejected. ON Semi had trouble securing financing to fund its part of the deal. Eventually, the two companies dropped their bid.
- United Technologies-Diebold: United Techologies offered $2.6 billion for Diebold and kept its unsolicited offer on the table for eight months before giving up.
I might have missed a couple more, but you get the idea. Hostile deals don’t seem to work in tech, despite all that people said when Oracle succeeded in buying BEA two years ago. Does the adage about assets, i.e. engineers, walking out the door in hostile situations still apply? Or are there other reasons, such as cultural fit, that cause a lot of resistance among target companies in techland?
(Photo: Reuters)
Unfriendly deals are up this year
Broadcom’s tender offer for Emulex shares may be techland’s first hostile deal this year, but unwanted moves seem to be fairly popular across the rest of the M&A landscape. At any rate, more popular than last year.
This year, 30 percent of all deals involving U.S. public companies have been “unfriendly,” compared with 21 percent in the same period last year, according to FactSet MergerMetrics data. In absolute numbers, there were more such deals last year (23) than this year (18).
In its definition of “unfriendly” deals, FactSet includes both unsolicited offers, in which “the acquirer has publicly disclosed its offer to acquire the target,” and hostile deals, in which “the target’s board has formally rejected the unsolicited offer and the acquirer has continued to try and get control of the target.”
The New York Times Dealbook blog, meanwhile, cites data from Dealogic saying the volume of hostile deals so far this year is just 4 percent of total announced deals worldwide, compared with 12 percent announced in all of 2008. Not sure if Dealogic distinguishes between “hostile” and “unsolicited” the way FactSet does.
Factset’s Jim Mallea explained that Dealogic’s numbers may also include all announced deals, including public and private targets, which would account for the discrepancy with FactSet’s numbers.
The number of companies that have announced their intention to wage a proxy war where they’ve also announced an unsolicited or hostile bid is also higher this year, FactSet data show — 10 situations this year compared to six last year in comparable periods.
Some of the unsolicited takeover bids this year include PepsiCo’s $6 billion offer for The Pepsi Bottling Group and Pepsi Americas, and Enterprise Procuts Partners’ $2.75 billion takeover offer for oil pipeline company Teppco Partners. Both targets have rejected the offers.
Credit crisis advantage?
The credit crisis may just be the leverage Roche needs in its bid for Genentech.
The Swiss drug maker went hostile with its bid to buy the 44 percent of Genentech it doesn’t already own. But in a rather unusual move, it has gone to shareholders with an offer that is actually lower than the $44 billion bid it initially made for the U.S. biotech group.
Investors now have a public tender offer at $86.50 per share in cash, valuing the deal at $42 billion, down from $89 per share earlier.
After the initial announcement in July, Genentech shares rose to a high of $99.05, but later fell back below the offer price as the credit crisis bit, giving Roche the leeway to lower its bid.
Roche had initially aimed to acquire the remaining shares through a negotiated settlement — an offer rejected by Genentech — and decided to appeal directly to shareholders after further talks failed to reach an agreement.
Genentech could have been trying to delay the process until key clinical data on its blockbuster cancer drug Avastin due in April — when positive results could drive up the company’s value, analysts said.
DEALS OF THE DAY
Only in tech? I think the word hostile tells the whole story, no goodwill at the targeted company means no symbiosis and a disfunctional investment.