Shareholder activism rarely kills a U.S. merger

PHILADELPHIA (Reuters) - Once a merger offer has been made, shareholders might as well get used to the idea of a deal since history shows investors have limited success rates at launching formal campaigns to block U.S. deals.

So far this year, five deals, or 25 percent, of the 20 deals announced have faced “vote no” or similar shareholder activism campaigns, according to FactSet MergerMetrics.

That rate compares with 5.6 percent a year ago and marks the highest rate of merger activism in the past five years, FactSet said.

“Clearly when merger activity picks up, the activists are more vocal. During a recession and a downturn in M&A activity, the hedge funds and activists are more concerned about preservation of their funds,” said Morton Pierce, chairman of law firm Dewey & LeBoeuf’s mergers and acquisitions group.

“These campaigns don’t tend to be successful unless there’s something terribly wrong with the existing deal and the market has serious concerns. Otherwise, if you’re not offering someone something else -- another deal -- it’s generally unsuccessful,” Pierce said.

In a review of 139 deals since 2006, less than five percent of the activist battles were successful, according to FactSet.

Some rare examples of success include the 2008 campaign against Bronco Drilling Co Inc's BRNC.O proposed acquisition by Allis-Chalmers Energy Inc ALY.N. Although Allis-Chalmers eventually sweetened the terms of the deal, the merger pact collapsed prior to the shareholder meeting.

In another case, the proposed 2007 acquisition of Lear Corp by billionaire investor Carl Icahn, shareholders said the takeover price was too low and voted down the deal at the special shareholder meeting.

Such cases are rare.

“Most shareholders, particularly institutional shareholders, are generally happy with deals that have been approved and presented by their board of directors,” said Francis Aquila, a mergers and acquisitions attorney at Sullivan & Cromwell in New York.

“Some institutional shareholders may have specific concerns that may not resonate with the entire shareholder base and may not succeed,” Aquila said.

The slim success rate has failed to dissuade recent activist campaigns.

Some shareholders of theme park operator Cedar Fair FUN.N plan to vote against the $2.4 billion takeover by private equity firm Apollo Management, saying the price is too low.

The $11.50-a-share offer made in December is not indicative of the true value of the company, said shareholder Q Funding III, L.P, which owns 9.8 percent of the outstanding units of Cedar Fair. Neuberger Berman also said it would vote its 9.6 percent stake against the deal Cedar Fair deal.

Another battle centers around Allied Capital Corp ALD.N. Prospect Capital PSEC.O has made a unsolicited offer to acquire Allied in an effort to thwart Allied's deal with Ares Capital Corp ARCC.O.

Allied favors takeover by Ares Capital, despite its lower offer price. Prospect has been soliciting proxies to “vote no” against the Ares merger.

“Once a deal has been announced or rumored, shares often migrate into the hands of holders who have a short-term investment horizon and they tend to be very reluctant to block a deal. They may be supportive of trying to get a better price, but most tend to be looking forward to banking their investment and moving on,” Aquila said.

(Reporting by Jessica Hall; Editing by Tim Dobbyn)

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