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You are here: Home > Current Topics > In The News > Mergers and Takeovers |
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In the News07 November 2005 The merger activity was started last Monday when Spanish firm Telefonica made a bid for O2 worth £18 billion. This was followed by a bid for Pilkington, the glass manufacturers, by Japanese firm Nippon for £2 billion. Next came a bid thought to be around £3 billion from Dubai Ports World for P&O, the shipping company. Then the London Stock Exchange itself got clearance from the Competition Commission to proceed with the merger discussions it had been having with Euronext and Deutsche Börse. What has seemed to interest some analysts is the reaction to these announcements from the public at large and the business community. Years ago such announcements would have been met with anguish and much hand wringing by many. Why? Because they all have one thing in common. They are all British companies being hunted by foreign buyers. The cries of 'selling the family silver' would have been at the forefront of the indignation that Britain was selling out to foreigners. These days the view about mergers and takeovers is less parochial. It is widely accepted that the global nature of business means that a takeover or merger approach by a foreign company does not really matter that much. What matters is what the long-term future of the new business might be. For shareholders of O2, the takeover might be very good short-term business. The value put on the company by Telefonica is much higher than it was originally, after it was hived off from BT in November 2001. Then the expected value was between £10 and 15 billion. At that time workers protested that the merger did not make sense and that it would lead to job losses and a reduction in value for the shareholders. For shareholders, the Telefonica bid means they will receive 200p per share - up from the current price of around 165p and well up on the original share price of 84p. Do these mergers therefore make good business sense? Biz/ed was asked recently by a student for examples of mergers that were not successful given that the spin put on them is that they generally are. It depends of course on how you define success and failure and from what perspective you look at it from. It will also depend on the length of time over which the merger or takeover is assessed. The takeover of Safeway by Morrisons, for example, has seen some difficult times for Morrisons but in five years' time after the restructuring has been largely completed will we still look at it with the view that it was a mistake? Activity on the stock market is generally higher on the announcement of a merger or takeover because to do the deal the bidder has to offer a decent price to persuade shareholders to accept the offer. They also have to make it clear what they intend to do with the business and of course they are not going to say they will run it into the ground! Investors therefore try and get on the bandwagon early to make a quick profit from the speculation and then look round for other businesses that might be in a similar position to get in there before any announcement is made. Search the In the News archive:You can search the In the News section by using the form above or browse the stories using the links below. |
