In Europe, the Age of Hostile Takeovers Dawns--and No Firm Is Safe
PARIS — Among top European companies, relations long seemed as genteel as a London gentleman’s club. This year, they seem about as chummy as a shark tank.
Propelled by Europe’s single currency and market, increasingly diverse and demanding shareholders and the availability of funding in capital markets, the era of the hostile takeover has dawned in Europe.
The groundbreaking success was a $34.7-billion bid by Olivetti, an Italian technology conglomerate once best known for its typewriters, for control of Telecom Italia, a former state-owned telecommunications provider.
Thanks to $23 billion it was able to raise on the Eurobond market as leverage, after three months of intricate maneuvering that began in February, the Piedmont-based minnow managed to gobble the whale.
“This shows the protection of large industry is over,” David Rothnie, editor of Acquisitions Monthly, a London-based trade publication, said in an interview. “It was really Europe growing up. No company is now safe.”
Another struggle now filling the financial pages of European newspapers is between two French oil companies, Elf Aquitaine and TotalFina, both of which want to absorb the other. On Monday, Elf unveiled a plan to take a controlling interest in TotalFina and chop the result into two separate world-class companies in oil and chemicals.
Elf’s maneuver was a desperate parry to TotalFina’s unsolicited $43-billion offer July 5 for a controlling share of Elf’s stock. The goal, said Thierry Desmarest, president and chief executive of TotalFina, was to create an $86-billion oil giant, edging out Chevron as the world’s No. 4 petroleum company.
Also in France, Banque Nationale de Paris is pressing on with its unwelcome campaign to swap enough of its shares to secure a controlling $40-billion interest in two other Paris-based banks, Societe Generale and Paribas, that had decided to join forces on their own without BNP.
Other prey in nearly $180 billion worth of hostile European takeover plays so far this year--some failed, others ongoing--include banks in Italy, an English brewery, a Norwegian company that pumps oil from offshore platforms in the North Sea and Gucci, the Italian maker of designer shoes, handbags and other high-fashion items.
In some instances, the aggressive new style of capitalism has run into a wall of official hostility in countries where governments traditionally take an active hand in the marketplace. Several of the hostile takeover bids in the Italian banking sector fell through because of intervention by the Bank of Italy, industry analysts say.
Nor has patriotism faded amid the relentless market forces.
In France, Finance Minister Dominique Strauss-Kahn has smiled on TotalFina’s attempt to absorb Elf, saying the Gallic titan that would result would be “protected from any takeover attempt by an Anglo-Saxon or American company.” The French government retains a “golden share” in Elf, a former state-owned company, which it could, and almost certainly would, use to veto competing offers from overseas.
The takeovers are a new sub-current in Europe’s tide of mergers and acquisitions that was well underway last year. With the advent in January of the euro, a new common currency shared by 11 European Union countries, and continuing harmonization of laws, regulations and consumer likes and dislikes in EU member states, Western Europe is looking more like a single market than ever before.
To do business on this expanded playing field, and to be able to take on competitors from North America, Asia or elsewhere, many European corporate leaders want to get bigger. Acquiring another company may also be the quick way to add growth.
“They all want to be on top,” said Philip Keevil, head of European mergers and acquisitions at Salomon Smith Barney investment bank in London. “None is big enough by itself to be on top. So you encourage them to merge. Then they can be on top, or at least get a better seat at the table.”
Michel Perebeau, president and general director of Banque Nationale de Paris, has explained that the new environment ushered in by the euro is the spur to his “urgency” in trying to create a French banking monolith that would have $1 trillion in assets, making it by that measure the world’s largest bank.
Sometimes the driving logic for mergers or takeovers is industry-specific. In the oil industry, for instance, companies around the globe have undertaken a series of mega-mergers over the last 12 months.
Crude prices, though at their highest in 20 months, are likely to remain flat in the foreseeable future, meaning that adding volume to realize economies of scale is the best way to make the greater profits needed to compete. In particular, recent developments in technology demand vast resources to exploit, especially in finding and developing deep-water oil reserves.
“It’s get big, and play on all fields, or stay small, and play the game another way,” explained Peter Bogin, Paris-based associate director of Cambridge Energy Research Associates, a tracker of trends in the oil and gas industry.
Desmarest has said TotalFina, itself the product of a just-consummated merger between French and Belgian companies, made its grab for Elf “to assure continued solid growth and to take our place as an oil major of the first rank, at a time when the industry is restructuring on a global scale.”
While many European companies from banking to energy have been merging with old national rivals to better rule their home turf, Rothnie predicted that the next 12 to 18 months “will be a time of unbridled cross-border deal-making.”
“This is the year of big deals, and the year of Europe,” agreed Keevil at Salomon Smith Barney. “In past years, Europe had been running about half the level of the U.S. [in total value of mergers and acquisitions]. This year, the majority of deals over $10 billion involve a European party, or two European parties.”
Other trends underlie the boom in hostile takeover bids, experts say. Government divestment in EU countries has put more big companies into the private sector than ever. Deutsche Telekom, the privatized German telephone giant, mounted an unsuccessful $81.5-billion white knight challenge to Olivetti, and is now on the prowl for another telecommunications company to buy. Telecom Italia showed that the former state-run companies can also be takeover targets.
The growing importance of continental stock markets as sources of capital, and the presence of foreigners in those markets, are also forcing an overhaul of many of the old practices.
French President Jacques Chirac complained in a Bastille Day television interview that foreigners now own such a large chunk of French companies that it was enough for a California pension fund to sell its shares in Alcatel, a manufacturer of telecommunications and satellite equipment, for the stock price to plummet “in 24 hours” in September.
“A lot of CEOs in Europe will now have to run the companies to the benefit of shareholders rather than the interests of members of the board of directors,” predicted Rothnie.
In many cases, laws in Western Europe have also not kept pace with the tactics of corporate raiders, making hostile takeovers that much more tempting. Telecom Italia had no “poison pill” defense at hand to frighten off or defeat Olivetti, experts say.
Though many of the hostile takeover attempts that followed Olivetti’s capture of Telecom Italia have failed, Rothnie believes the handwriting is on the wall for European companies to prepare their defenses now.
“Once an event the size the Telecom Italia happens,” he explained, “it becomes the norm.”
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