PHILADELPHIA (Reuters) - The recent uptick in merger activity has included an increase in strong-armed takeover tactics that has made unfriendly deals even more hostile.
In recent weeks, Novartis AG (NOVN.VX) has launched an offer for Alcon Inc (ACL.N) that includes a lesser value or squeeze-out for minority shareholders. Astellas Pharma Inc (4503.T) launched a hostile bid for OSI Pharmaceuticals Inc (OSIP.O) and sued to block OSI"s poison pill. Meanwhile, Air Products and Chemicals Inc (APD.N) launched a hostile bid for Airgas Inc (ARG.N) and the two companies traded lawsuits.
"Hostile activity picks up when merger activity picks up, and generally there is litigation associated with it," said Morton Pierce, chairman of law firm Dewey LeBoeuf"s mergers and acquisitions group.
"What you"re trying to do is put pressure on a target"s board. The best way to do that is to offer a high premium to build shareholder pressure. Another way to do it is to sue -- no one likes to get sued. It"s a time-consuming and annoying process to go through," Pierce said.
There has been a marked increase in the percentage of unfriendly deals in the last couple of years as compared with prior years, according to FactSet MergerMetrics.
So far this year, 26.7 percent of deals have been unsolicited or hostile, up from 18.2 percent for the full year 2009, and compared with just 7.4 percent in 2004, according to FactSet MergerMetrics.
In most cases, the hostile offers have come with rich premiums, as well as lawsuits.
For OSI, Astellas offered $3.5 billion, or $52 a share, marking a 53 percent premium to OSI"s three-month average. Along with that rich premium came a lawsuit by Astellas to prevent OSI from using its existing poison pill.
TACTIC TO DISTRACT
"Even if it"s not successful, it"s a tactic in a hostile bid to distract, annoy and unearth details about your target through the deposition and discovery process," said one investment banker who declined to be identified because he was not authorized to speak with the media.
OSI"s poison pill is a lesser-used takeover defense now than in the past. Shareholder activism efforts convinced many companies to reduce their takeover defenses such as poison pills or staggered boards.
In 1998, 294 companies in the SP 500 had a poison pill in force at the end of the year. By the end of 2009, only 84 companies in the SP 500 did, according to FactSet SharkRepellent.
The tactics in the takeover battle for Airgas, which also boasts a poison pill, are different.
Airgas is suing to stop the law firm Cravath, Swaine Moore from representing Air Products in the deal, saying that Cravath worked for Airgas until recently and would have a conflict of interest. The judge was not swayed in the arguments and Cravath remains on the Air Products case.
In a separate suit, Air Products is hoping to force Airgas to form a board committee to consider the deal.
Airgas contends that Air Products" $5.1 billion bid substantially undervalues the industrial gas supplier. Airgas" stock is trading at $64.96, above the $60 per share offer. That signals that investors expect Air Products to raise its price.
PRICE WARS
Meanwhile, price is the central issue in the battle for Alcon.
Novartis aims to pay Nestle (NESN.VX) $28.1 billion, or $180 per share, for its Alcon stake, while giving minority holders $11 billion in a stock-for-stock exchange. The price for minority holders was initially indicated at $153 per share, but the value of Novartis shares has since declined.
Advisory firm RiskMetrics Group Inc said Novartis" offer to acquire a minority stake in Alcon at a discounted price fails to follow best practices for mergers and acquisitions.
It said "relying on technicalities to discriminate against one set of shareholders is clearly not best practice."
Eye care firm Alcon, founded in 1945 by two pharmacists in Texas, is listed on the New York Stock Exchange but is incorporated in Hunenberg, Switzerland.
As a result, Alcon minority shareholders do not benefit from protections under Swiss and U.S. laws. The deal relies on some geographical loopholes, which flouts "best practices," RiskMetrics said.
"Whatever the legal judgment, we note that relying on technicalities to discriminate against one set of shareholders is clearly not best practice," RiskMetrics said.
(Reporting by Jessica Hall, editing by Matthew Lewis)
Deals Inflows Outflows
No comments:
Post a Comment