On the Defensive

Defending against increasingly popular hostile takeover bids can be expensive, but the costs may be worth it if it nets a better deal.

As if extreme market volatility wasn’t enough of a challenge, some CFOs found their summers sullied by the need to mount a defence against a hostile bid. Since the start of 2008, unsolicited or hostile bids have accounted for 17% of global M&A, the highest proportion in nine years, according to data provider Dealogic. What’s more, only 30% of this year’s unsolicited approaches were later rejected or withdrawn, down from the ten-year average of 45%.

The momentum is with the opportunists. In August, when Swiss miner Xstrata snatched up 11% of UK rival Lonmin’s shares and appealed directly to shareholders, Lonmin’s chairman, Sir John Craven, lamented: “There is an awful lot of doom and gloom in the stockmarkets and cash is king. You cannot expect people not to take a pile of cash when it is on the table.” Nevertheless, Lonmin vowed to fight the “totally inadequate” bid, at least until early October, when Xstrata is forced to make a formal offer by the authorities.

With capital scarce, the cost of manning the barricades can come as an unwelcome expense. Internet firm Yahoo!, for example, paid $36m (€25m) in fees, equivalent to 27% of second quarter net income, to fend off a hostile bid from Microsoft earlier this year. Anheuser-Busch, an American brewery, reportedly paid twice as much for its unsuccessful fight against Belgian-Brazilian suitor InBev. The resistance it funded pushed InBev to raise its initial $65-per-share offer by $5, no small change in a deal worth $52 billion. Sometimes it pays to play hard to get.

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