Читать книгу Mergers, Acquisitions, and Corporate Restructurings - Gaughan Patrick А. - Страница 30

The downward trend that characterized M&As in the 1970s through 1980 reversed sharply in 1981. Although the pace of mergers slowed again in 1982 as the economy weakened, a strong merger wave had taken hold by 1984. Figure 2.4 shows the number of M&A announcements for the period from 1970 to 2013. The unique characteristic of the fourth wave is the significant role of hostile mergers. As noted previously, hostile mergers had become an acceptable form of corporate expansion by the 1980s, and the corporate raid had gained status as a highly profitable speculative activity. Consequently, corporations and speculative partnerships played the takeover game as a means of enjoying very high profits in a short time. Whether takeovers are considered friendly or hostile generally is determined by the reaction of the target company's board of directors. If the board approves the takeover, it is considered friendly; if the board is opposed, the takeover is deemed hostile.

Figure 2.4 Net Merger and Acquisition Announcements 1970–2013. Source: Mergerstat Review, 2014.

Although the absolute number of hostile takeovers in the fourth merger wave was not high with respect to the total number of takeovers, the relative percentage of hostile takeovers in the total value of takeovers rose during the fourth wave.

The fourth merger period may also be distinguished from the other three waves by the size and prominence of the M&A targets. Some of the nation's largest firms became targets of acquisition during the 1980s. The fourth wave became the wave of the megamerger. The total dollar value paid in acquisitions rose sharply during this decade. Figure 2.5 shows how the average and median prices paid have risen since 1970. In addition to the rise in the dollar value of mergers, the average size of the typical transaction increased significantly. The number of $100 million transactions increased more than 23 times from 1974 to 1986. This was a major difference from the conglomerate era of the 1960s, in which the acquisition of small and medium-sized businesses predominated. The 1980s became the period of the billion-dollar M&As. The leading megamergers of the fourth wave are shown in Table 2.3.

Figure 2.5 Average and Median Purchase Price, 1970–2013. Source: Mergerstat Review, 2014; Table 1-4.

Table 2.3 Ten Largest Acquisitions, 1981–1989

Source: Wall Street Journal, November 1988. Reprinted by permission of the Wall Street Journal, copyright Dow Jones & Company, Inc. All rights reserved.

M&A volume was clearly greater in certain industries. The oil industry, for example, experienced more than its share of mergers, which resulted in a greater degree of concentration within that industry. The oil and gas industry accounted for 21.6 % of the total dollar value of M&As from 1981 to 1985. During the second half of the 1980s, drugs and medical equipment deals were the most common. One reason some industries experienced a disproportionate number of M&As as compared with other industries was deregulation. When the airline industry was deregulated, for example, airfares became subject to greater competition, causing the competitive position of some air carriers to deteriorate. The result was numerous acquisitions and a consolidation of this industry. The banking and petroleum industries experienced a similar pattern of competitively inspired M&As.

Role of the Corporate Raider

In the fourth wave, the term corporate raider made its appearance in the vernacular of corporate finance. The corporate raider's main source of income is the proceeds from takeover attempts. The word attempt is the curious part of this definition because the raider frequently earned handsome profits from acquisition attempts without ever taking ownership of the targeted corporation. The corporate raider Paul Bilzerian, for example, participated in numerous raids before his acquisition of the Singer Corporation in 1988. Although he earned significant profits from these raids, he did not complete a single major acquisition until Singer.

Many of the takeover attempts by raiders were ultimately designed to sell the target shares at a higher price than that which the raider originally paid. The ability of raiders to receive greenmail payments (or some of the target's valued assets) in exchange for the stock that the raider has already acquired made many hostile takeover attempts quite profitable. Even if a target refuses to participate in such transactions, the raider may succeed in putting the company “in play.” When a target goes into play, the stock tends to be concentrated in the hands of arbitragers, who readily sell to the highest bidder. This process often results in a company eventually being taken over, although not necessarily by the original bidder.

Although arbitrage is a well-established practice, the role of arbitragers in the takeover process did not become highly refined until the fourth merger wave. Arbitragers such as the infamous Ivan Boesky gambled on the likelihood of a merger being consummated. They would buy the stock of the target in anticipation of a bid being made for the company.

Arbitragers became a very important part of the takeover process during the 1980s. Their involvement changed the strategy of takeovers. Moreover, the development of this “industry” helped facilitate the rising number of hostile takeovers that occurred in those years.

In the 2000s we do not have corporate raiders such as those attacked companies in the fourth merger wave. However, the modern version of these raiders are today's activist hedge funds which we discuss in Chapter 7.

Other Unique Characteristics of the Fourth Wave

The fourth merger wave featured several other interesting and unique characteristics. These features sharply differentiated this time from any other period in U.S. merger history.

Aggressive Role of Investment Bankers

The aggressiveness of investment bankers in pursuing M&As was crucial to the growth of the fourth wave. In turn, mergers were a great source of virtually risk-free advisory fees for investment bankers. The magnitude of these fees reached unprecedented proportions during this period. Merger specialists at both investment banks and law firms developed many innovative products and techniques designed to facilitate or prevent takeovers. They pressured both potential targets and acquirers into hiring them either to bring about or to prevent takeovers. Partially to help finance takeovers, the investment bank of Drexel Burnham Lambert pioneered the development and growth of the junk bond market. These previously lowly regarded securities became an important investment vehicle for financing many takeovers. Junk bond financing enabled expansionist firms and raiders to raise the requisite capital to contemplate acquisitions or raids on some of the more prominent corporations.

Increased Sophistication of Takeover Strategies

The fourth merger wave featured innovative acquisition techniques and investment vehicles. Offensive and defensive strategies became highly intricate. Potential targets set in place various preventative antitakeover measures to augment the active defenses they could deploy in the event that they received an unwanted bid. Bidders also had to respond with increasingly more creative takeover strategies to circumvent such defenses. These antitakeover strategies are discussed in detail in Chapter 5.

More Aggressive Use of Debt

Many of the megadeals of the 1980s were financed with large amounts of debt. This was one of the reasons small companies were able to make bids for comparatively larger targets. During this period the term leveraged buyout (LBO) became part of the vernacular of Wall Street. Through LBOs, debt may be used to take public companies private. It often was the company's own management that used this technique in management buyouts. Although public corporations had been brought private before the fourth wave, this type of transaction became much more prominent during the 1980s.

Legal and Political Strategies

During this period new conflicts arose between the federal and state governments. Besieged corporations increasingly looked to their state governments for protection against unwanted acquisition offers. They often were able to persuade local legislatures to pass antitakeover legislation, which brought the federal and state governments into direct conflict. Some representatives of the federal government, such as the Securities and Exchange Commission, believed that these laws were an infringement of interstate commerce. For their part, some state governments believed that such laws were based on their constitutionally granted state rights. Clearly, however, some state governments became protectors of indigenous corporations.

International Takeovers

Although most of the takeovers in the United States in the 1980s involved U.S. firms taking over other domestic companies, foreign bidders affected a significant percentage of takeovers, although nothing compared to what would take place in the fifth merger wave. An example of one of the international megadeals of the fourth wave was the 1987 acquisition of Standard Oil by British Petroleum for $7.8 billion. Many of the deals were motivated by non-U.S. companies seeking to expand into the larger and more stable U.S. market. In addition to the normal considerations that are involved in domestic acquisitions, foreign takeovers also introduce currency valuation issues. If the dollar falls against other currencies, as it did in the 1990s relative to many currencies, stock in U.S. corporations declines in value and the purchasing value of foreign currencies rises. A falling dollar may make U.S. acquisitions attractive investments for Japanese or European companies. The increased globalization of markets in the 1980s and 1990s brought foreign bidders to U.S. shores in increased numbers. Although U.S. companies may also engage in acquisitions in foreign markets, as many have, a falling dollar makes such acquisitions more expensive.

Role of Deregulation

Certain industries were deregulated during the 1980s. Mitchell and Mulherin analyzed a sample of 1,064 M&As and other restructurings over the period 1982–1989.44 They found that in industries that had undergone significant federal deregulation, such as air transport, broadcasting, entertainment, natural gas, and trucking, this deregulation was found to be a significant causal factor. They also noticed that all industries did not respond to deregulation in the same way. For example, the response in broadcasting was quicker than in air transport.

Why the Fourth Merger Wave Ended

The fourth merger wave ended in 1989 as the long economic expansion of the 1980s came to an end and the economy went into a brief and relatively mild recession in 1990. The economic slowdown led to the unraveling of a number of the high-profile leveraged deals of the fourth wave. In addition to the overall slowdown in the economy, other factors that led to the end of the wave included the collapse of the junk bond market, which had provided the financing for many of the LBOs of the period.