Stigma over failed takeover bid is disappearing amid shareholder pressure, analysts say
The number of hostile takeover bids in the US has more than doubled so far this year from the same period last year as shareholders push large companies to use cash reserves to create value rather than seeking greater share buybacks, according to media reports.
The number of unsolicited takeover bids climbed to 40 so far this year, with US healthcare insurer Cigna rejecting a $54 bn offer from rival Anthem and pipeline operator Williams refusing a $53 bn bid by Energy Transfer over this this past weekend alone, according to a report by the Financial Times. The number is up from 20 in the same period last year, according to Thomson Reuters data cited in the newspaper.
‘Now buyers are being pushed by their shareholders to make bold approaches that will help their company grow and if they fail because the seller requested an unreasonable premium it’s not a tragedy,’ Gregg Lemkau, global co-head of mergers and acquisitions at Goldman Sachs, says in an interview with the FT.
‘Back in the day [pre-financial crisis] if a company went hostile it had to win or its stock would suffer. Now the stigma has gone,’ he says, adding that shareholders want acquiring companies to abandon bids that become too expensive.
Large cash reserves and cheap, readily available credit is also spurring companies to position themselves to gain market share and a competitive edge in their industries before an expected increase in rates toward the end of the year. Cash reserves at US non-financial companies rose 4 percent last year to a record $1.73 trn, according to Moody’s data.
Besides the increasing readiness of acquiring companies to abandon a bid when it becomes too expensive, boards that receive offers are increasingly willing to reject them in expectation of better offers amid the ongoing stock market boom, the newspaper says.
Other high-profile bids this year include Monsanto’s $45 bn bid for Syngenta and Teva’s $40 offer for rival drug maker Mylan.
