Hostility is out and friendliness is in for merger deals

The credit crisis and the global financial meltdown caused uncertainty and violent gyrations in the equities markets during 2008, leading to widely depressed stock prices. One consequence was a wave of unsolicited takeover offers, as industry leaders suddenly looked cheap, or at least affordable, to potential acquirers.

You know what? Most of those hostile bids were unsuccessful. What looked like a good deal one week often turned into an unaffordable one within days or weeks, as the stock markets continued their roller-coaster rides. Stock-swap transactions became untenable as stock prices yo-yoed, and cash deals lost their luster as bidders found the economic downturn draining their cash reserves.

Some hostile bids went on for weeks and months, such as Microsoft’s feckless pursuit of Yahoo!. United Technologies went after Diebold, a deal the ATM maker quickly and persistently rejected. UTC finally gave up after seven months.

Many hostile takeover battles were unsuccessful, yet some provided an entrée for opportunistic investors. Carl Icahn, the master of the wait-them-out takeover campaign, piggybacked onto Microsoft’s bid for Yahoo! and won three seats on the Yahoo! board as a result. It remains to be seen whether his sizable investment in Yahoo! stock will be profitable, however; his good buddy T. Boone Pickens lost a bundle on purchasing Yahoo! shares, hoping the master would work his magic as usual.

As hostile bids fell by the wayside, there was a secondary consequence of all this trouble in the capital and credit markets. Friendly acquisitions abounded.

With private equity buyout firms mostly on the sidelines, takeover targets found “white knights” in unusual places. When Virtek Vision International, a Canadian manufacturer of lasers, was besieged by an American company, StockerYale, it rejected the unsolicited offer as too low, and StalkerYale went hostile on them, putting out a cash tender offer to shareholders. Virtek held out against the unsolicited bid, and was rewarded when Gerber Scientific made a friendly offer for the company, at a price about 60% higher than StockerYale’s offer. StalkerYale finally withdrew the bid when not enough shareholders took the bait. Virtek had a brief moment of uncertainty when a big shareholder in the company, Jaguar Financial, threatened an unsolicited offer of its own, but Jaguar relented in the end, selling its shares to Gerber.

What may finally happen to Yahoo! is still in question. It looks likely, however, that a friendly, negotiated offer to buy part or all of the Internet company will ultimately prevail.