Hostile bids set to rise in 2011

[] — HOSTILE takeover bids are likely to multiply in 2011, as companies aggressively look for value despite notable failures and delays in completing recent unsolicited deals.

There were more than $260 billion in hostile and unsolicited bids launched last year, more than double the total in 2009, according to Thomson Reuters data.

And the trend is expected to strengthen in 2011, even with BHP Billiton failed pursuit of Canadian fertilizer company Potash Corp and Air Products and Chemicals Inc’s nearly year-long pursuit of rival Airgas Inc driving headlines.

“We are likely to see a continued increase in hostile activity,” said Gary Posternack, head of M&A for the Americas at Barclays Capital.

Posternack believes an upswing in M&A is underway, with potential buyers looking aggressively at strategic acquisition opportunities.

The value of hostile and unsolicited deals announced in 2010 is still dwarfed by the totals reached in 2006 through 2008, when companies launched $640bn, $727bn and $392bn in bids, respectively.

According to Barclays, unsolicited deals have accounted for roughly 15% of M&A transactions since 1998.

Westlaw Business Currents Editor in Chief Ely Razin expects more of the same in 2011.

“Since the hostile levels of activity really picked up in the latter parts of 2010, more of the same – a whole year of that – would mean a lot more hostile activity,” Razin told Reuters Insider.

He expects Canada to be a particularly active area, because of that country’s exposure to energy and natural resources.

Westlaw is a unit of Thomson Reuters.


Chris Young, head of takeover defense at Credit Suisse Group AG, is already seeing a pretty strong backlog for hostile bids in 2011.

He said buyers and sellers may have increasing disagreements over relative value if the economy improves, which should spur more unsolicited advances.

“Bidders who have a lot of cash on the balance sheet, they are going to be under pressure to try to close that bid-ask spread before the market runs away from them,” Young said. “If they sit around too long and there is an expansion in the economy, the target price will go up on a daily basis.”

Moreover, bankers said recent failed bids and drawn out hostile processes have not given board members and executives cold feet about moving ahead with unsolicited bids.

“In those situations there were very specific circumstances that made it kind of tough,” said one investment banker, who spoke on the condition of anonymity. “It’s a tool in the tool chest and companies are going to use that when they are thinking about acquisitions.”

Conditions for launching hostile bids have also improved in recent years, as institutional investors have weakened corporate takeover defenses and the stigma once attached to going hostile has faded.

“As we talk to companies about potential strategic acquisition targets, the question now is less, ‘Is the company available?’ and more so, ‘How can I make the company available?'” Barclays’ Posternack said.

“Any historical stigma about using aggressive acquisition tactics has pretty much dissipated, with a number of large blue chip companies having pursued such approaches in recent years.”