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Sun, Feb 19, 2006 - Page 12 News List

Hostile takeovers the order of the day in corporate Europe

European companies, after taking a few years of rest to get their own houses in order, have embarked on a new round of aggressive mergers and acquisitions


Hostile takeover offers are expensive, attract public criticism and historically fail more than half of the time.

So why are they suddenly on the upswing in Europe?

In scenes more reminiscent of the heyday of corporate raiders in the US, a number of European companies have been lobbing hostile offers against rivals in recent months, often setting off widespread public outcry.

The US$23 billion unsolicited offer for Arcelor of Luxembourg by Mittal Steel, a company with headquarters in Rotterdam but run by the Indian-born Lakshmi Mittal, incensed European politicians. The move provoked a response from the chief executive of Arcelor, Guy Dolle, who referred to the offer in language that the Indian government and others considered racist.

A US$50 billion unsolicited bid from Gas Natural of Spain goaded executives from Endesa to call their rivals everything from mistaken to liars. Executives at Endesa contended that after they turned the offer down, they were followed by private detectives.

The normally staid industry of plasterboard manufacturing was thrown into turmoil when Compagnie de Saint-Gobain of France bid US$6.7 billion for the UK's BPB.

After BPB mounted a defense that included reporting what it called "stunning" first-half results, Saint-Gobain management accused the company of "exaggerating its prospects," and insinuated that the company would miss its growth goals.

Dealmakers, who by and large leave most of the public trash-talking to the company executives, say that Europe's newfound aggression stems in part from a growing sense of unrest among shareholders.

"Shareholders are saying, `We want more,'" said Paul Gibbs, head of European merger research at J.P. Morgan. Many European companies reined themselves in after the spending boom of the late 1990s, but not all of them did so.

"There are companies that haven't changed," Gibbs said, companies whose attitude toward investors is "We're XYZ Corporation, we know what we're doing, we're giving you dividends, so what more do you want?"

Those types of companies trade at a discount, Gibbs said, because they have not become more efficient or improved their corporate governance.

The growing number of hedge funds can be good friends during these deals -- they often bid up shares of a company, driving up the stock price and making it nearly impossible for the company to remain independent.

BPB ultimately fell to Saint-Gobain for US$6.8 billion, even though management wanted more, in part because hedge funds that wanted to see the deal go through had amassed as much as a quarter of BPB's stock.

Of course, hedge funds can also be opponents of a takeover campaign. The hostile bid by the Deutsche Borse for the London Stock Exchange was scrapped last year because hedge funds that held shares of the German exchange thought it was too expensive.

Friendly merger opportunities are dwindling. Private equity funds, fat with cash, are also prowling Europe for takeovers and have already swept up some of the most likely targets.

"Some people would be more comfortable on the sidelines, but they can't stay there," said a lawyer in London who is advising on several hostile deals.

And, to complete the picture, macroeconomic factors are playing a part.

"There is just a lot of inefficiency in the European economy," said Eric Cafritz, a partner with the law firm of Fried, Frank, Harris, Shriver & Jacobson in Paris.

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