Dealtalk: CEOs bare teeth and go hostile

NEW YORK Mon May 2, 2011 7:37pm EDT

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NEW YORK (Reuters) - As deal volume and CEO confidence picks up, companies are starting some daring fights, fearful that long-coveted assets will go to rivals.

Still, going hostile remains a last ditch approach for most companies, which struggle with the pros and cons of expending political and financial capital in a public fight that might fail.

"When companies realize a long coveted asset is in fact involved in a deal with someone else, they see it as an opportunity to get involved, even if they did not initiate the process themselves," said Steven Koch, a vice chairman and co-chairman of Credit Suisse's M&A Group, based in Chicago.

As industries consolidate, target choices become more scarce, causing buyers to become more daring and willing to take risks.

NASDAQ OMX Group Inc (NDAQ.O) and IntercontinentalExchange Inc pulled the trigger on Monday, saying they would take their $11 billion bid for NYSE Euronext NYX.N hostile -- an expected move after the NYSE board twice rejected their offer in favor of one by Germany's Deutsche Boerse AG (DB1Gn.DE).

Unsolicited and hostile deals are gaining more acceptance and have less negative connotations, dealmakers say, although they are still the last ditch approach when a friendly overture has failed.

Global deal volume year to date is up 55 percent when compared with the same period in 2010 and the amount of unsolicited approaches worldwide in value terms has also risen, although not at the same pace -- up 36 percent to $45.5 billion, according to Thomson Reuters data.

"To the extent that a target is not interested in selling, (a buyer) has to decide whether to abandon the strategic plan or force the issue -- and we're seeing more and more companies prepared to force the issue," said Frank Aquila, M&A lawyer at Sullivan & Cromwell.

Hostile and unsolicited approaches to U.S. targets made up nearly 17 percent of overall transactions so far this year, according to FactSet Mergerstat, lower than 2010's 23 percent, but higher than the 12 percent recorded in 2009. Those figures are dwarfed by 2008's figure of 39 percent, FactSet's figures show.

Companies are approaching targets on a largely friendly basis, but are maybe "more proactively knocking on doors than they have in the past," said Christopher Ventresca, co-head of North America M&A at JPMorgan Chase & Co (JPM.N).

Still, companies are uncomfortable leading with an aggressive approach, Ventresca said and it remains "an extremely difficult, gut-wrenching decision" to cross into public hostile territory.

Other moves announced on Monday were U.S. construction machinery maker Terex Corp's (TEX.N) hostile bid for Demag Cranes AG D9CGn.DE and Community Health Systems Inc (CYH.N) raising its offer for reluctant takeover target Tenet Healthcare Corp (THC.N).

Going hostile clearly carries a significant risk of failure.

Miner BHP Billiton Plc's (BHP.AX) hostile $39 billion bid for Canada's Potash Corp (POT.TO) collapsed last year in the face of political opposition in Canada.

Canada's Valeant Pharmaceuticals International Inc (VRX.TO) made a hostile bid for Cephalon Inc CEPH.O, but lost to Teva Pharmaceutical Industries Ltd TEVA.O, which announced on Monday a nearly $7 billion deal to buy Cephalon.

Still, France's Sanofi Aventis managed to win U.S. biotech company Genzyme after a hostile fight turned friendly.

HEADY PACE

The first four months of the year have seen deal volume bounce back as companies wielded stronger balance sheets and looked to deploy cash they had been hoarding. Dealmakers see that continuing through the traditionally quiet summer months.

"My anticipation is that given ... the level of activity that is simmering below the surface ... I expect the summer to be certainly as active as things are now, if not more so," said Koch.

Two large all-cash friendly deals were announced on Monday -- Teva Pharmaceutical's deal for Cephalon and Arch Coal Inc's (ACI.N) $3.4 billion acquisition of International Coal Group Inc (ICO.N).

"The bottom line is that strategic buyers are looking torwards doing transactions," said Aquila.

He added that, while confidence is coming back, people are still concerned about possible economic bumps ahead.

The uptick has come despite a weakening dollar, making U.S. companies' purchasing power abroad less advantageous.

Dealmakers played down the foreign currency impact on CEO's decisions to acquire, however, saying deal decisions are overwhelmingly made for strategic reasons and not put off by moves in rates.

(Additional reporting by Nadia Damouni in New York; editing by Andre Grenon)

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