The 1980s was the era of the corporate raider. Hostile takeovers by activist investors such as T. Boone Pickens, Carl C. Icahn and Michael Milken were considered a threat by corporations large and small, and many economists saw these takeovers as providing much needed discipline, keeping the focus of managers and directors on the single goal of improving stock performance.
Today, the market’s appetite for hostile acquisitions seems to be dwindling, according to a law professor at Ohio State University writing for the New York Times’ DealBook blog. This year, there have been three hostile takeover offers total among publicly traded companies, with only one of them involving a company worth more than $25 million. Last year, there were only 12 attempts. In fact, as the professor points out, corporate directors of publicly traded companies stand a greater chance of being in a car accident than having to face down a corporate raider.
During the 80s, anti-takeover laws were passed in a number of states to put barriers in the way of corporate raiders. Still, in the 90s takeover activity was still common enough. Now, however, most of the activity in mergers and acquisitions is focused on friendlier transactions. The total dollar value of mergers in the first half of 2013 grew by 27 percent, but the number of takeovers was down by 23 percent.
Has the market fundamentally changed, or are hostile acquisitions something companies can expect to become a threat again once the economy improves?
According to the professor, the market will have to answer that question. It’s likely that the hostile takeover threat did its economic job by forcing companies be run more leanly, leaving fewer undervalued companies ripe for additional takeovers. Both corporate boards and shareholders are constantly scrutinizing their companies’ value that they are less likely to accept a lowball bid. Furthermore, both companies and potential investors know that takeovers divide management focus from driving stockholder value, making it riskier for the investor to jump in unannounced.
Until we see an upturn in the economy at the least, the risk of hostile acquisitions is likely to remain low. Should corporations start to get too comfortable, however, and the calculus could change. How quickly that changes may depend on investor pressure to utilize and profit from the current, near-record level of cash on hand held by business organizations in the U.S. and abroad.
Source: The New York Times’ DealBook blog, “With Fewer Barbarians at the Gate, Companies Face a New Pressure,” Steven M. Davidoff, July 30, 2013