Takeover Mania?
It seems that not a day goes by without some report in the financial press about a takeover bid by one company for another. This week, the emphasis is on two possible takeovers, one surrounding Alliance Boots and the other linked to Barclays' attempts to secure a deal with Dutch bank ABN Amro. The Alliance Boots affair comes only a short time after a merger between Boots and Alliance Unichem, which took place in 2005/06.
Both bids are being contested. The offer for Alliance Boots has been made by a private equity group called Kohlberg Kravis Roberts (KKR). The rival bid was made by a group comprising the Wellcome Trust, Halifax Bank of Scotland (HBOS) and another private equity firm, Terra Nova. The bid for ABN Amro by Barclays was also subject to the possibility of a counter-bid by a group made up of the Royal Bank of Scotland, Banco Santander and a Belgian bank called Fortis.
Despite the mood seemingly being in favour of acquisition, there are a number of problems that both bids might have to overcome before any takeover or merger is confirmed. Shareholders have to agree to the recommendations of the board and will base their decision on the price they think they will get from the bidders - if a second bidder comes in with a better offer, the original bid could be defeated. Then there is the issue of regulators. In the case of the Barclays bid, it is reported that there could be as many as 70 different regulatory regimes in as many different countries that may have to be satisfied for the bid to go ahead.
Some way to go for Barclays before it secures the takeover of ABN Amro, which would make it one of the largest banks in the world with a value of around £94 billion. Copyright: A. Ashwin.
For other stakeholders of the companies concerned, the issues may be more worrying. Employees might be concerned about the prospects for their jobs in the wake of any takeover. Barclays suggested that as many as 12,800 jobs could go, as well as the possibility that over 10,000 might be moved to low-cost locations. Employees of the Alliance Boots group are also concerned about the prospects for their jobs and for their pensions.
There have also been concerns voiced by trades unions about the possibility of so called 'asset stripping'. This is where valuable parts of a business are sold off in an attempt to recoup the money used to buy the company in the first place. Much of the acquisition activity in recent months has had private equity behind it and some have argued that this is not healthy. Private equity firms tend to buy businesses, run them for a short time and them try to sell them at some future point to make a profit. The need to cut costs and boost revenue to achieve this, which is not good for the long-term future and stability of businesses, it is argued.
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