Hostile takeovers hit record as market swoons

By Jessica Hall

PHILADELPHIA (Reuters) - Hostile takeovers have more than doubled to a record level in the United States so far this year, boosted by falling stock prices and weakened corporate defenses.

U.S. hostile deal activity has reached a record high of $211 billion so far this year, up 140 percent from a year ago, according to Thomson Reuters data.

"Given the volatility in the equity markets and the number of companies trading at distressed levels, companies with strong balance sheets are trying to be opportunistic and go after targets that may be temporarily depressed." said Stefan Selig, Bank of America Corp's (BAC.N) vice chairman of global investment banking and head of global mergers and acquisitions

Unfriendly deals, including unsolicited and hostile deals, accounted for 22.1 percent of all U.S. mergers so far this year, compared with 12.1 percent for all of 2007, according to FactSet MergerMetrics.

Unsolicited deals include any takeover offer made without negotiations or without an auction being held for the target. A hostile bid means the suitor has bypassed the target company's board and taken its takeover offer directly to shareholders.

The uptick in hostile and unsolicited offers comes as buyers with strong balance sheets and cash-on-hand are feeling pressure to find new growth in the weak economy, so they turn to takeovers to find creative ways to build shareholder value, according to Christopher Ventresca, co-head of North American mergers and acquisitions at JP Morgan Chase & Co (JPM.N).

Unsolicited deals this year crossed international boundaries as foreign companies such as InBev NV INTB.BR, emboldened by the weak U.S. dollar, grabbed a foothold in the United States.

InBev ultimately won the hand for U.S. brewer Anheuser-Busch Cos Inc BUD.N for $60.4 billion after sweetening its bid to $70 per share, up from its original unsolicited offer of $65 per share.

Unsolicited bids also crossed a broad range of sectors, such as healthcare, energy and power, technology, retail, real estate and consumer products, and investment bankers see no slowdown in the diversity or volume of such activity.

"Companies with strong balance sheets and access to capital will continue to put that money to work in a strategic way," said Jeffrey Stute, co-head of North American mergers and acquisitions at J.P. Morgan.

In addition to the weakness in the U.S. stock market, with the Dow Jones industrials down over 16 percent this year, hostile bidders gained an advantage in recent years after many companies lowered their takeover defenses in the name of good corporate governance.

Many companies have dropped shareholder rights plans -- also known as poison pills because their provisions can make an unwanted takeover much more difficult -- and changed policies for electing directors, making it easier for hostile suitors to succeed, bankers said.

"The activist movement and the response by many companies to create more shareholder-friendly features -- such as the declassifications of boards, reductions in the numbers of poison pills -- makes hostile bids more likely to be successful," Selig said.

The volatility in the stock market and several big-ticket deals helped the U.S. outpace other regions in hostile activity this year.

For the first nine months of this year, hostile deal activity in Europe only totaled $104 billion, down from $304 billion a year ago, according to data from Thomson Reuters. The record for any nine-month period was set in 2006 by Europe, with $359 billion in hostile dealmaking.