Dear #Gaians
Once again, I am faced with the bittersweet ending of our time together, however I’m proud of your academic growth. Thank you very much for your effort; it has been pleasure exchange knowledge with you.
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Failed M&A
Large mergers and acquisitions often do not materialize. Competition issues with regulators, discrepancies in price, rejection of the counsel of the target company, or the emergence of a superior offer are the main reasons that the largest corporate transactions are disrupted.
As we have discussed before, there are a number of ways in which the directors of a target company may attempt to block the takeover (beyond simply advising shareholders against it) including strategies such as poison pill, white knight, golden parachute, and Pac-man defense.
Below are the main reasons of the biggest takeovers that have failed since 1995 (Source: Wall Street Journal) and the takeover defenses that they have adopted or could adopt.
BHP Billiton – Rio Tinto
2007 $144.97
Why the takeover failed?
In late 2007, Rio Tinto received an unsolicited offer from BHP Billiton. The offer was rejected on the basis that it undervalued Rio Tinto’s assets/future prospects. In 2008 the takeover failed because BHP Billiton in the presence of the economic recession, dropped its $144.97 billion bid after the European regulators sent a formal complaint outlining antitrust objections to the deal (Competition issues with regulators/discrepancies in price).
Curiously, later in 2009 Rio Tinto announced a $58 billion iron ore joint venture with BHP Billiton but the transaction was withdrawn in 2010.
Takeover defenses of the target company
As we saw in the IBook and in the Deliberation Forum; a target company can use a number of standard strategy defenses (white knight, poison pill, Pac-man defense…Page 25. IBook).
If BHP Billiton held its offer, Rio Tinto as a target company could consider a radical “Pac-Man” defense to ward off BHP Billiton’s offer (suggested reading in the forum). This move could help Rio highlight its own value and perhaps help it preserve its management should a friendlier deal come together.
As @ FEB_16_Daniel Chaves Lameiro commented, Rio Tinto had also other defenses options- find a white-knight bidder that would seek to complete a friendly merger with a better offer and conditions.
PFIZER (US) –> ASTRAZENECA (UK-SE)
2014 $117.35
Why the takeover failed?
In 2014, US drugs corporation Pfizermakes publicized interest in AstraZeneca and made a $117.35 takeover bid, but AstraZeneca’s board rejected its final offer because they consider that the offer was not good enough and that it was undervaluing the company and its future prospects and they were not happy with the amount of the offer. They were also concern about the viability of Pfizer’s plans to re-domicile to the UK through the takeover (corporate inversion) due the new U.S administration policy change designed to prevent U.S. companies from fleeing taxes by moving their mailing address abroad. (Rejection of the counsel of the target company/discrepancies in price). At the end Pfizer withdrew the takeover bid for UK pharmaceutical firm AstraZeneca.
Defenses of the target company
Most of the poison pills are illegal in the UK. As a result, you will see fewer hostile bids and it is more difficult for the target company to protect itself. However under the United States law, companies can adopt poison pills. If the case were under US regulatory landscape, the board of AstraZeneca could adopted a “poison pill” and issue more shares to the existing shareholders at a lower price than their valuation while they -as @ FEB_16_Diana García Pérezsaid- look for a “white knight” to offer a friendly takeover bid.
However Pfizer said that it would simply go away if AstraZeneca says no. Pfizer’s refusal to adopt a hostile response is a product of its focus on tax savings for the transaction.
In the UK, regulators allow you to make an offer and then directly approach the shareholders as part of a process. The UK takeover code was introduced in 2011 to give the target company more bargaining power to repel hostile takeovers.
Barclays – ABN Amro
2007 $90.96
Why the takeover failed?
In April 2007, the European Commission ordered Dutch regulators to allow the Takeover of ABN Amro. Soon, ABN received a $90.96 billion takeover bid from Barclays Bank. Two days after RBS Consortium, led by Royal Bank of Scotland (RBS) and including Fortis Bank and Banco Santander, joined the competition with a bigger offer which was cash richer, and looked more generous to the ABN shareholders than the equity-heavy offer from Barclays.
The takeover failed because the market forces including the credit crunch, and the support offered by the Bank of England, pushed down Barclays’ share price, meaning that it was unable to match the RBS Consortium proposal (emergence of a superior offer). Finally, on October 2007 the RBS Consortium announced that it had secured the bid for ABN.
In this case, the shareholders struggled to choose between the larger offer from the RBS Consortium, which would split ABN and the lower offer from Barclays, which would ultimately keep the entire ABN organization together. At the end the deal, at the time “the biggest banking takeover in history”, was concluded in an inflated price after a hostile bidding process.
Defenses of the target company
As a target company, there are some standard takeover defenses (poison pill, White knight – Page 25. IBook) in order to try to block unsolicited offers. Some times they work, but others fail.
In this case Barclays had made an approach to ABN Amro as a “white knight”, offering a deal that could help the Dutch bank see off break-up demands from hedge fund investors, but at the end Barclays offer fell, because the RBS team “won” despite the sale of LaSalle to Bank of America in a move viewed as a “poison pill” against the consortium’s blockbuster bid.
They probably as a target company could seek for another “white knight” with a higher offer than the one by Barclays as @SEP_15_LEYRE BARBERENA HUARTE suggested. Depending on the terms this new company offered, it would be regarded as hero or villain.
Deutsche Telekom – Telecom Italia
1999 $82.34
Why the merger failed?
In February of 1999, the Italian Olivetti, launched a hostile takeover bid, the biggest in European corporate history, in competition with the German Deutsche Telekom that also had its eye on Telecom Italia, and had already begun preliminary merger talks with the Italian company for about $82.34 billion deal. However Telecom Italia decided to resist the takeover for some time.
Deutsche Telekom did not to succeed in its role of “white knight”. At that time, the Italian government and the European Union competition watchdog refused to rubber stamp a deal (Competition issues with regulators). In the end, in April of 1999 the merger finally failed, because Olivetti made an offer for 5.1 billion to Telecom Italia shares at a price of $12.20 per share. Even though this offer was lower than Deutsche Telekom’s offer, it was mainly in cash. Latter the Olivetti offer was accepted with the deal, valued at $34 billion.
Defenses of the target company
As a target company, there are some standard takeover defenses (poison pill, white knight – Page 25. IBook) in order to try to block unsolicited offers.
In this case, Telecom Italia tried to resist Olivetti. As@Alejandro Martínez Cabrerasaid Telecom Italia started a poison pill selling a part of its company that Olivetti was interested in, in order to stop the process of the acquisition, however Olivetti didn’t lost its interest on the target. They could adopt a stronger “poison pill” defense through a capital restructuring that could increase the value of the company, which would put the target out of reach of Olivetti´s price range.
In the longer term the takeover of Telecom Italia by Olivetti was to have important implications for the structure of the Italian telecoms Industry.
21st Century Fox – Time Warner
2014 – 79.60
Why the takeover failed?
The Media empire Twenty-First Century Fox, made an $79.60 billion takeover bid for Time Warner in 2014, but Time Warner rebuffed its offer, because as@Alina Loredana Stefan commented, they consider that the offer was not as good as the own plan that Time Warner has to grow its business and that this plan would create more value than any proposal Fox is in a position to offer (rejection of the counsel of the target company/discrepancies in price). After some weeks Rupert Murdoch’s chairman of Fox, said he’s backing down after Time Warner’s board refused to engage in talks and Fox’s stock price declined 11 percent since the offer became public.
Defenses of the target company
Time Warner as a Target company could use one of the standard takeover defenses that we saw on page 25 of the IBook and the Deliberation Forum. For example Time Warner board and its executives- as a defense- could adopted a non-financial “poison pill” changing its bylaws to eliminate the right of shareholders to call a special meeting, so this way they can delay any effort by Fox to replace the company’s board until the next annual meeting. This delay in gaining control of the board (and therefore the votes necessary to approve certain key actions) is a sufficient deterrent for a takeover attempt.
The option of finding a “white-knight” a friendly bidder that can sweeten up the offer is on the table too. Walt Disney Co., Google Inc., Apple Inc., Amazon.com Inc. and Verizon Communications Inc. could be potential suitors.
American Home – Warner – Lambert
1999 $71.41
Why the merger failed?
In 1999 American Home Products Corp. and Warner-Lambert Co. announced a $71.41 billion merger. Pfizer sought to block this move by announcing an unsolicited $71.41 billion stock offer for Warner. In 2000 the merger failed because after months of resisting the unfriendly bid, Warner – Lambert agreed to negotiate with Pfizer because of shareholder pressure to entertain the higher offer (as@Ana Colomo Gallegosaid, emergence of a superior offer).
Pfizer/Warner-Lambert paid Termination fees to American Home Products, following Warner-Lambert’s decision to cancel its merger with AHP in favor of a union with Pfizer.
Defenses of the target company
Sometimes standard takeover defenses work (pg. 25.Ibook), but other times they fail. In this case Warner and American Home designed a stock-option agreement that amounts to a poison pill; the two companies had an option to buy a chunk of each other’s stock, and if the deal doesn’t go through, the breaker-up must pay $2 billion to the dumped company. Neither the breakup fee nor the complex agreement that’s designed to stop other bidders stopped Pfizer from getting Warner Lambert.
Procter & Gamble Co. joined the fray in January 2000, playing the “white knight” to save Warner – Lambert from its quandary, however the company promptly backed off from the deal with Warner-Lambert when its share price dropped.
Protector – Gamble Co. as a target company could sought harder for another “white knight” with a higher offer and better conditions than the one by Pfizer.
Comcast – Walt Disney
2004 $54.70
Why the takeover failed?
Cable giant Comcast stunned the world with a hostile $54.70 billion bid for Walt Disney in 2004, attempting to combine Comcast’s massive cable TV and broadband operations with Disney’s sprawling media enterprise. The takeover failed because Walt Disney rejection (as@Álvaro Medina Rivas said rejection of the counsel of the target company) to the offer caused its own stock to rise and Comcast Corp., which badly misjudged the reaction of its own shareholders and the board of Walt Disney Co. to its unsolicited bid, dropped its offer for the entertainment company, putting an end to a takeover battle for a vertical integration.
Defenses of the target company
In the battle of the magic kingdom, Disney had a few cards to play in an effort to control its own fate. As we saw in the IBook and in the Deliberation Forum; a target company can use a number of standard takeover defenses (poison pill, White knight – Page 25. IBook) to try to find competing bidders.
As a target company Walt Disney could look for a white-knight bidder that would seek to complete a friendly merger with Disney. The strategy most likely to succeed in maintaining Disney’s independence would be ousting Comcast and replacing it with a Wall-street friendly bidder. A poison pill could also be an effective tool to help directors of the target company to negotiate a superior deal for shareholders. However at the end Comcast CEO Brian Roberts withdrew the offer in May 2004.
AbbVie – Shire
2014 $54.68
Why the takeover failed?
In 2014 after negotiations, US AbbVie based in Chicago made a final bid to acquire Shire Pharmaceuticals for $54.68 billion and move the combined company’s legal address to the U.K. to lower its tax bill (corporate inversion) and access cash trapped overseas. Later in the same year, the takeover failed because both companies decided end the negotiations after new tax rules from Mr. Obama’s Treasury Department aimed at deterring U.S. companies from moving their legal headquarters to lower-tax countries.
As a result of the termination, as @JUL_15_Juan Carlos Amarillo Gonzálezsaid; AbbVie agreed to pay Shire the breakup fee of about $1.635 billion.
Defenses of the target company
As we discussed before; a target company can use a number of standard takeover defenses (Page 25. IBook) to try to find the best option for its interest.
At that time, if the acquisition had become hostile, Shire could look for a “white knight” in Allergan, who has tax domiciliation in Ireland and it was trying to fend off a hostile takeover bid by Valeant, a combination of both could create a pharmaceutical giant. Some analyst suggested Pfizer as a “white knight”, but probably it was not the best candidate due the new tax regulations in US.
Valeant – Allergan
2014 $54.65
Why the takeover failed?
In 2014 Valeant Pharmaceuticals International Inc. with the activist investor William Ackman targeted the Botox maker Allergan Inc. for a hostile takeover. Allergan rejected the offer saying, “They believed Valeant’s business model was unsustainable and that the offer was too risky because of uncertainty about the company’s long-term growth”.
At the end, the long-running $54.65 billion hostile bid failed, because Allergan said it would sell itself to rival drug-maker Actavis PLC for about $66 billion (rejection of the counsel/emergence of a superior offer).
Defenses of the target company
Allergan as a target company has adopted a “poison pill” defense against Valeant jointly with activist investor William Ackman. Allergan said; “If any unapproved investor acquires 10 % or more of Allergan’s stock, other stockholders will have the right to buy discounted shares”. The defense mechanism, known as a “shareholder rights plan”, tried to prevent Mr. Ackman, who disclosed a 9.7% stake in Valeant, from significantly growing his position. It also tried to prevent Valeant from taking its hostile offer straight to shareholders in a direct offer to purchase stock.
Finally Allergan found its “white knight” (as@DEC_15_Elisa Martínez Garcerán said)in $66B Actavis PLC Takeover, thwarting the pending $53 billion bid for Allergan by Valeant Pharmaceuticals International Inc. Actavis PLC has changed its name to Allergan PLC, three months after acquiring the maker of the anti-wrinkle treatment Botox. Its new stock symbol is “AGN” on the New York Stock Exchange.
E.ON – Endesa
2006 $50.59
Why the takeover failed?
Back in 2005 Spain’s Gas Natural’s attempted to acquire Spanish power producer Endesa, who rejected Gas Natural’s offer calling it “hostile, grossly and inadequate”. The Government did not look favorably the operation either.
In 2006, the German energy giant E.ON joined the battle with an offer of $50.59 billion. Finally in 2007 Germany’s E.ON abandoned its long-running attempt to acquire a majority stake in Spanish power company Endesa because after having fought for more than a year against fierce resistance from Spain’s government, they accepted a deal with rival bidders to buy €10 billion ($13.4 billion) of Endesa’s assets in return for handing final control of the group to its largest shareholders Enel and Acciona.
The withdrawal of E.ON’s bid concludes a hard-fought battle for control of Endesa.
Defenses of the target company
Endesa board has a fiduciary duty to its shareholders to obtain the best price possible for their shares. As we saw in the IBook and in the Deliberation Forum; a target company can use a number of standard takeover defenses (Page 25. IBook) to try to find competing bidders.
In this case Endesa as a target company, looked for a “white knight” to save them from Gas Natural, and “found” one as@MAR_16_ Silvestre Prado Gonzálezsaid in the German group E.ON, but at the end went from bad to worst. Although the German giant presented a sweeter bid for Endesa, at that time they were political connotations in Spain, the Government had many open fronts, they were negotiating the Catalan Statute, and the last thing they needed was a foreign group came in and control the main Spanish electric company. At the end the new bidders Acciona and Endel took over the control of Endesa
The arrival of white knights could be beneficial for the small companies, because most of the times raise the price of the takeovers bid. This happened with Endesa, the final offer of Enel and Acciona was made at €41.30 million compared to €21.30 million that started whit Gas Natural takeover bid.
Microsoft-Yahoo
2008 – $47.48
Why the takeover failed?
With its eyes fixed steadily on rival Google, software giant Microsoft shocked the tech world with a hostile $47.48 billion bid for Yahoo in 2008. Yahoo´s CEO Jerry Yang respond to the final offer saying that the price was too low and would not sell for anything less than an additional $5 billion, because he felt they undervalued the company (discrepancies in price) forcing Microsoft CEO Steve Ballmer to call off the deal talks.
Later in the same year, the housing bubble burst and the stock market crashed, setting off the deepest recession in the US since the Great Depression of the 1930s. As a consequence of this Yahoo’s stock crashed, and by the end of the year the company was worth less than half of what Microsoft had offered to pay. However, in the present Yahoo´s stock price got up again.
Defenses of the target company
Yahoo´s board has a fiduciary duty to its shareholders to obtain the highest Price possible for their shares. As we saw in the IBook and in the Deliberation Forum; a target company can use a number of standard takeover defenses (poison pill, white knight – Page 25. IBook) to try to find competing bidders. Increasing the price would allow Yahoos management to show that their efforts were successful and would allow them to negotiate on better terms.
In this case, Yahoo as a target company attempted to block the takeover with an effective weapon; a “poison pill” adopted by Yahoo’s board, which guaranteed insanely expensive severance for any employees laid-off after a change in control. In other words it was a compensation plan that gave employees accelerated vesting rights in the event of a merger or major change of company ownership. Employees would make more money if they lost their jobs, which means after a takeover, a good chunk of the talent would leave at a significant expense.
In the other hand, as @ Oscar Erades de Quevedo said, If Microsoft held its offer, Yahoo could also look for a “white knight”; a bidder who makes a friendly takeover bid as an alternative to a hostile takeover bid that is already in progress. Several firms like AOL and Interactive could had interest by that time to step up and try to block the merger. Other way if at the end Microsoft were to obtain Yahoo this would mean that they would be up against Google and Microsoft, a very tough battle to win indeed.
Comcast – Time Warner Cable
2014 $45.25
Why the merger failed?
On February 2014 Comcast had made a bid to acquire Time Warner Cable for about $45.25 billion, the deal would create a new Internet and cable giant. In 2015, the vertical integration failed because Comcast dropped the bid for Time Warner due the opposition from regulators, because they considered that the proposed merger could pose unacceptable risk to competition and innovation (Competition issues with regulators).
At the end, not only Comcast had to withdraw its bid for the cable company but it also opened itself up to investigations. Apparently this was a strong reason for Comcast to be kicking itself for trying to merge with Time Warner Cable.
Defenses of the target company
As we saw in the IBook and in the Deliberation Forum; a target company can use a number of standard strategy defenses (golden parachutes, white knight…Page 25. IBook).
Golden parachutes are common features in the employment contracts for public company executives, and they can reach huge amount of money. In this case Robert Marcus CEO and other executives of the target company unveiled a “golden parachute”, so in the case that Comcast purchased Time Warner Cable and they became as one, the new company will not need duplicated CEOs… In this sense Marcus was going to receive about $80 million as his pay out to an early-retirement, but then the whole merger deal went south and the golden parachute failed to deploy.
As@MAR_16_ Elena Ara Isusiimplied, Time Warner Cable found a “white knight” in Charter Seen, which was not vertically integrated with other content providers, compared to Comcast, which owns NBC Universal. On March of this year Charter Communications Inc. won approval from New York City to acquire Time Warner Cable Inc.
General Electric-Honeywell
2000 $44.16
Why the merger failed?
When General Electric found out in October 2000, that defense contractor United Technologies planned to make an offer for aviation electronics Honeywell, General Electric CEO Jack Welch lined up his own bid and after discussions with his board, came up with a $44.16 billion offer. GE’s offer arrived before Honeywell’s board had even considered UTX’s proposal. G.E. underestimated the risk that regulators might balk at such a powerful combination, so at the end the merger failed because as@ Laura Luque Ramón said,the antitrust regulators in the European Union said the deal would stifle competition (Competition issues with regulators).
Honeywell CEO Michael Bonsignore was dismissed shortly after the deal fell apart. Welch walked away from the merger, which reinforced his reputation for doing deals only when they made sense for his shareholders.
Defenses of the target company
As we saw in the IBook and in the Deliberation Forum; a target company can use a number of standard strategy defenses (Page 25. IBook) to try to find competing bidders, this would allow Honeywell to negotiate on better terms.
Honeywell as a target company could look for a “white knight” to complete a friendly merger. In this case their old compatriot United Technologies Inc. could has been very welcome in and do what it did before GE came along, however if that were the case they should also had in mind that the risk that regulators step in could be present as well in this case.
France Telecom – TeliaSonera
2008 $41.78
Why the takeover failed?
France Telecom offered $41.78 billion in cash and stock for TeliaSonera, the Swedish-Finnish phone company with holdings across the former Soviet Union and Turkey. The acquisition failed because TeliaSonera rejected the offer saying that it undervalued the company (as @Jaime Pérez García said, discrepancies in price) making France Telecom call off.
As a result of this failed takeover, France Telecom’s shares fell 4 percent in Paris after making the offer public as some investors deemed the French group was willing to overpay for TeliaSonera.
Defenses of the target company
In this case France Telecom made a friendly offer, but in case that they decided go hostile, TeliaSonera as a target company could adopt the standard takeover defenses (poison pill, white knight – Page 25. IBook) to try to find a better offer.
They could adopt a non financial “poison pill” changing its bylaws to eliminate the right of shareholders to call a special meeting, so this way they can delay any effort by France Telecom´s to replace the company’s board until the next annual meeting. This way they could provide some time to look harder for another “white knight” that delivers a better offer.
Keep curious! Keep open! Keep learning!
Cheers!
Angela Arana Montes
Magneto Expert
