Crisis, What Crisis?

When it comes to dealmaking, the party may be over for private equity. But cash-rich corporate buyers have reason to cheer.

For these bidders, RBS’s success in its own deal may prove inspiring. “One day there will be a deal more complex [than the ABN Amro takeover] — I’m sure that’s the case,” Shropshire says. “But this was pretty darn complex,” he adds.

The Twilight Zone

Now that the “froth has come off” prices and banks “aren’t falling over themselves to lend,” corporate dealmakers should have the upper hand over private equity and other financial players in the takeover market, according to David Raff, head of the corporate group at law firm DLA Piper.

But the opportunity won’t last for- ever, cautions Wieland Janssens, global head of the financial sponsors group at ABN Amro. “We’re in an unusual period where we’ve had a financial crisis but not an economic crisis yet — it’s a twilight period,” he says. “Equity valuations have kept up relatively well, so corporates’ currency is still very good, particularly if they’re paying with stock. But it may not last for long.”

Jason Karaian is deputy editor and Tim Burke is a senior staff writer at CFO Europe.

So Near, and Yet So Far

From abandoned buyouts to mismatched mergers, plenty of dealmakers lost out this year.

As renowned American football coach Knute Rockne once said, “Show me a good and gracious loser and I’ll show you a failure.” By Rockne’s measure, there were plenty of M&A failures in 2007.

In November, Qatari investment fund Delta Two ended months of talks with UK supermarket chain J Sainsbury, dropping a planned bid for the retailer. Delta Two’s Paul Taylor said his colleagues still considered the supermarket chain “an excellent company” with a “leading market position and strong long-term growth opportunities.”

Good and gracious sentiments indeed, and one of the year’s more notable M&A failures. Delta Two’s withdrawal emphasised the clout of pension funds in takeover situations. Delta Two reportedly needed to devote an extra £500m to Sainsbury’s pension fund before the trustees would back a deal. This and other factors — including troubles in the credit markets — made an offer too expensive, according to the fund.

Power Cut

A merger between Nuon and Essent seemed like a promising partnership when the two Dutch energy companies agreed a combination in February. But the deal was scrapped in September after months of due-diligence drama.

Essent was reluctant to reveal commercially sensitive information to Nuon until it was convinced a deal would go through. Nuon was unwilling to accept the merger’s proposed exchange ratio — which would see Nuon take 45% of the combined entity — without the information in question. The result: deadlock.

The deal could have created a Netherlands-based utility large enough to fulfil global expansion opportunities. Instead, both companies are now rumoured to be takeover targets. As Essent CFO Rinse de Jong says, the worst case scenario is that “rather than keep one player in the game, we [could] lose both players.”

Nevertheless, Nuon and Essent are forging ahead with back-up plans. By 2011, they and other integrated Dutch energy companies must separate their network-operating businesses from commercial activities such as power generation. For Nuon, explains CFO Doede Vierstra, the company’s options include remaining independent, although it seems that a merger or joint venture is more likely. “We believe that the mechanics and the economics of the energy world around us will dictate that scale is of key importance,” he says.

De Jong, meanwhile, is confident that Essent has a bright future for now. “We have a large project pipeline,” he says. Convincing shareholders that past growth can be maintained for a “reasonable time,” the CFO adds, should buy the company some time to “survive on our own, grow the company, and continue to create value up to the moment where shareholders will again take stock of their situation.” — T.B.



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