Growing Hostility: Are Unsolicited Deals on the Rise?

Weekly Corporate Growth Report, Jul 21, 2008 by Dolbeck, Andrew

The age of unfriendly deals may be upon us. Some the largest and most visible acquisition bids so far this year have been hostile. InBev's play for AnheuserBusch, currently valued at $52 billion, began as a hostile takeover bid. Microsoft's less successful bid for Yahoo! Inc. was also unsolicited. China has staged its first international hostile deal, with state-run steel maker Sinosteel successfully pursuing Australian iron ore producer Midwest. And WPP Group has recently made a $2.2 billion unsolicited bid for British market research giant Taylor Nelson Sofres. But do these deals really represent a trend towards aggressive, unsolicited deals?.

Hostile deals have been getting a lot of press, but that may be because they generate a lot of newsworthy activity. After Anheuser-Busch rejected InBev's initial bid, InBev sought to remove AnheuserBusch's board through a shareholder vote. Although Microsoft never formally went hostile by taking its bid for Yahoo! directly to shareholders, it too threatened a proxy fight in the boardroom. And while Microsoft ultimately decided not to oust Yahoo's board, activist investor Carl Icahn has stepped up to attempt just that, believing that a deal is in Yahoo's best interest. Meanwhile, Microsoft and Yahoo! are both pursuing smaller merger possibilities in the wake of the failed takeover.

WPP Group's offer made the headlines by disrupting a deal between Taylor Nelson Sofres and German market researcher GfK AG. Taylor Nelson Sofres and GfK have agreed to terminate their current deal to allow GfK to make a rival bid to WPP's offer. But GfK has also stated that it is determined not to take unreasonable financial risks in its bid to acquire its British counterpart, making the final outcome of this move less certain.

In another interesting news story, the board of directors of Western Prospector Group Ltd. made the unusual move of voting to waive the application of the company's shareholder rights plan in the face of a hostile takeover bid by Khan Resources Inc. The board unanimously agreed to disable the poison pill because a significant number of major shareholders have indicated that they will not tender their shares to Khan's offer. By waiving the shareholder rights plan, Western hopes to send Khan a clear message that in order to succeed with Western shareholders, it must make an offer that reflects the true value of the company.

While hostile deals may be good press, the evidence suggests that they aren't really more common now than they have been in the past. According to research from Thompson Reuters, approximately $250 billion worth of hostile and unsolicited bids have been announced so far in 2008, including bids that have been withdrawn later, such as Microsoft's bid for Yahoo!. That's about 13 percent of the deals announced, roughly the same percentage seen at this time last year. By count, there have been 78 hostile offers so far in 2008, compared to 82 in the first half of 2007.

Discounting unsolicited and hostile bids that were eventually withdrawn leaves hostile offers accounting for only 8 percent of the total deal count for the first half of the year. Doing the same for the first half of 2007 yields the same result.

It's impossible to predict what will happen in the second half of 2008, but there is nothing yet to suggest that hostile takeovers are growing in popularity. It is possible, of course, that the success of InBev's hostile bid, in which Anheuser-Busch eventually accepted a sweetened offer, may inspire others. Only time will tell.

Sources: AdWeek, Forbes, Fox News, New York Times

By Andrew Dolbeck

Editor