Batten Down the Hatches

Hostile Takeovers Gain Momentum

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Hostile takeovers are becoming more frequent in Germany.
  • Why it matters

    Why it matters

    • Hostile takeovers used to be a relatively rare phenomenon in Germany, but that is changing.
  • Facts


    • Unsolicited bids accounted for 14 percent of all mergers and acquisitions last year.
    • Seven of the 10 biggest hostile takeovers occurred in the pharmaceuticals, healthcare and real estate segments.
    • One defensive measure against hostile takeovers is refusing to release financial information.
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It’s one of the toughest takeover battles in Germany. Residential real estate giant Vonovia is trying to swallow rival Deutsche Wohnen for €14 billion ($14.9 billion), but the smaller competitor is pulling out all the stops to fend off the attempt.

Last Friday evening, Deutsche Wohnen injected a poison pill into the unwanted deal: The company said it was increasing its debt with the purchase of additional real estate for about €1.2 billion. But Vonovia remains undeterred. Hostile takeovers, primarily an Anglo-Saxon phenomenon until recently, are becoming acceptable in Germany and the rest of Europe.

So-called “unsolicited bids” accounted for 14 percent of all mergers and acquisition in continental Europe last year, and their share is growing.

Investment bankers with Citigroup believe that the volume of hostile takeovers will increase this year. The biggest unwanted jumbo-merger was orchestrated this year by Belgian brewery group Anheuser-Busch InBev, when it paid $117 billion to acquire competitor SAB Miller.

Seven of the 10 biggest hostile takeovers occurred in the pharmaceuticals, healthcare and real estate segments. They include, in addition to the Vonovia takeover, generic drug maker Teva’s bid for competitor Mylan.

Companies can consider defensive measures in advance, even before a bidder surfaces.

Deals of a hostile nature are now a driving force in the M&A business, which is breaking records worldwide.

The previous M&A record from 2007 was surpassed in late November, at $4.2 trillion, according to information service provider Thomson Reuters.

And there is plenty more to come. “The pipeline for possible transactions is filled to capacity, across a wide range of industries,” said Nicolo Salsano, co-head of investment banking for Germany at Credit Suisse. This includes takeover plans in the automobile industry, as well as the chemical and pharmaceutical industries, telecommunications and technology.

Some of this volume will include attempts to acquire companies against their will, to which German corporate leaders and their companies are not immune.

“We expect more unsolicited takeover bids for the coming year, in Europe and elsewhere,” said Ken Oliver Fritz, co-head of the Lazard investment bank in Germany. In most cases, hostile takeover bids are pursued with little fanfare.

It usually begins with an informal meeting, over lunch, for example, to define the opposing positions. A written proposal is often submitted to the board of directors and the non-executive supervisory board, which has to sign off on any proposal.

If both continue to play hard to get, efforts could escalate into a “public embrace” in the form of a notice or a published letter to the board of directors, listing the advantages of a merger. In the end, the public offer is submitted to the target company’s shareholders, and it usually shows a significant markup over the current share price. Second-tier companies are especially at risk.

“In Germany, we tend to expect such attempts among companies not listed on the DAX,” said Mr. Fritz of Lazard.

But companies are not helpless. They can consider defensive measures in advance, even before a bidder surfaces.

For instance, in the case of hostile takeover bids, the target company is not obligated to release information. This makes true due diligence – that is, a detailed business audit – virtually impossible. Ultimately, such measures can prevent unsolicited takeovers, explained Lazard co-head Eric Fellhauer.

However, this is also changing. “In light of the high liquidity in many companies, as well as favorable, extensive and readily available financing, limited access to the accounts of the acquisition target is only a partial deterrent,” said Rainer Langel, head of German operations for Australian investment firm Macquarie Capital.

To prepare for a hostile takeover bid, the board and supervisory board of a company should decide which “crown jewels” they are willing to sell to fend off an attacker. This is important, because, for legal reasons, this option is no longer available once a takeover bid has been publicized.

According to Lazard manager Mr. Fellhauer, however, it is often difficult to keep up the strategy of “stubborn resistance.”

“At the very least, management will decide to increase the value of the bid for shareholders,” he said. “If it is unable to deliver later on, the management is often replaced.”

In contrast to Vonovia’s bid for Deutsche Wohnen, most of the next year’s attackers will be foreign companies trying to acquire German technology and know-how.

“There will also be a growing willingness to act in a hostile manner,” said Christian Kames, head of German investment banking for Citigroup. “The last time this occurred was when Potash tried to buy the German company K+S.”


Peter Landgraf and Peter Köhler are editors at Handelsblatt. To contact the authors: and

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