I visited Gent, Belgium as a guest of the Vlerick Leuven Gent Management School to give a speech to a gathering of Chief Financial Officers of large and medium-size European firms. They asked me to speak on the subject of success and failure in mergers and acquisitions (expanding on the themes of my book, Deals from Hell). These executives seemed well-versed in the conventional thinking about M&A. During the question period that followed my talk, the CFOs wanted most to explore the phenomenon of hostile takeovers. Their interest made me wonder whether we are about to see an uptick in the volume of hostile deals in Europe.
Historically, the hostile takeover has been a phenomenon of the Anglo-Saxon economic sphere (mainly the U.S.) Unsolicited bids were comparatively much rarer in Europe. But M&A activity in Europe has increased sharply in the past couple of years, fueled first by a dramatic rise in private equity takeovers of firms—such deals tend to be friendly. Therefore, it seems paradoxical that hostile deals should arise in the same environment. And rise they have in 2006: Mittal successfully taking over Arcelor, E.On’s bid for Endesa, Enel’s attempted takeover of Suez, Saint-Gobain Group’s bid for BPB, Gazprom bidding for Ukraine’s gas distribution system, and on and on.
All this activity plainly has European senior executives thinking differently. My assessment is that it is high time. The wave of hostile deals is not some random aberration. Instead, it is driven by the globalization of product markets and financial markets, neither of which will be prevented by the actions of companies or governments. Hostile takeovers are among the most complicated problems one encounters in corporate finance. One needs not only a mastery of the standard tools of M&A, but also an understanding of the strategy of games, national and international laws, and the unique perspective of the arbitrageur. (I discuss the detailed mechanics of hostile bidding in my book, Applied Mergers and Acquisitions.) My advice to the CFOs was to get smart about hostile takeovers. Whether we actually see a sizable rise in the volume of hostile deals in Europe is impossible to predict, though until this M&A wave plays itself out, we will probably find that they continue to grab headlines. I do think, however, that the past pattern of just friendly European deals is passing.
Posted by Robert Bruner at 11/17/2006 12:20:21 PM