Why hostile M&A is rare - especially in the UK
BREAKINGVIEWS-Why hostile M&A is rare - especially in the UK The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Liam Proud
LONDON, July 28 (Reuters Breakingviews) - Big deals involving British targets have carried giant takeover premiums this year. Intertek's ITRK.L board extracted an offer from EQT EQTAB.ST that was 59% over its pre-approach trading price. Rotork ROR.L got 73% from ABB ABBN.S, while easyJet EZJ.L drew 81% from Apollo Global Management APO.N. Shareholders would probably have accepted much less, which raises an intriguing question. Why don't more bidders go "hostile" by sidestepping boards entirely?
There have been eight announced deals with UK-listed targets this year where the implied enterprise value was $5 billion or more, LSEG data shows. The average premium was 54%, according to Breakingviews calculations. Globally, 25% to 30% is the norm, using LSEG data.
In some cases, like Intertek and Segro SGRO.L, investors were urging a recalcitrant target board to engage. That should open up space for hostile M&A, where a bidder presents an offer directly to shareholders. Melrose Industries MRON.L did this successfully with GKN in 2018. Euro zone lenders, including UniCredit CRDI.MI and BBVA BBVA.MC, have done so recently, with mixed results.
Several research papers and industry data gatherers have found evidence of a long-term decline in hostile M&A globally. The dropoff seems particularly stark in Britain. Takeover Panel data covering the last three years to March shows that practically all successful transactions came with a recommendation from the target's board. The lost art of hostile dealmaking has been replaced by a now-familiar dance. Suitor and target trade barbs for several rounds until the bidder makes a "best and final" offer, after which either the deal collapses or the board recommends it.
One general reason for a decline in hostility is the increasing importance of regulation. Getting antitrust approval, or in easyJet's case the assent of industry watchdogs, is doubly difficult when the target demurs. Bankers and lawyers told Breakingviews that the rise of private equity also contributes. Lenders putting up debt equivalent to 6 or 7 times EBITDA want bidders to perform extensive diligence, which requires the target company's cooperation.
There are UK-specific reasons too. Britain's Takeover Panel has since 2011 enforced an automatic 28-day "put up or shut up" period, giving offerees control of the timeline and stopping bidders pursuing a war of attrition. Finally, the default structure for UK deals now is a "scheme of arrangement", which buyers favour because it allows them to quickly sweep up minority investors. The process relies on the target's cooperation, making hostility a non-starter. All of this means that boards' recommendations have become more valuable over time, especially in Britain.
Still, this trend may contain the seeds of its own destruction. The harder that boards push on price, the more tempting it will be for a bold UK bidder to try their luck with a hostile move. A patient bidder that can live with the regulatory risk - say, a cash-rich large company - could decide that it's worth disrupting the familiar dance to pay a slimmer premium. Until that happens, though, British boards will retain considerable leverage — and bidders will keep paying for it.
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CONTEXT NEWS
Several major UK takeover attempts have been struck at relatively high premiums in recent months. EasyJet and suitor Apollo Global Management said the U.S. bidder's most recent offer proposal was 81% above the undisturbed price. The equivalent figures for Prologis-Segro, Zurich-Beazley, EQT-Intertek and ABB-Rotork were 39%, 60%, 59% and 73% respectively.
(Editing by George Hay; Production by Streisand Neto)
((For previous columns by the author, Reuters customers can click on PROUD/liam.proud@thomsonreuters.com))