On February 15, 2011, NYSE Euronext and Deutsche Böerse AG announced that they had entered into a business combination agreement. The combined group will be headquartered in both Frankfurt and New York.
The transaction is structured as a combination of NYSE Euronext and Deutsche Böerse under a newly created Dutch holding company which will be effected through a merger and a public exchange offer. NYSE Euronext will merge with a US subsidiary of the new holding company, and each NYSE Euronext share will be converted into 0.47 of a share of the new holding company. The new holding company will also launch a public exchange offer, and Deutsche Böerse shareholders may tender their Deutsche Böerse stock on a one-to-one basis for shares of the new holding company.
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NYSE Euronext and Germany’s Deutsche Börse, two of the world’s largest stock exchange operators, announced this week that they are in “advanced discussions” regarding a possible merger which would create the largest stock exchange in the world. According to Reuters, the board of NYSE Euronext is expected to meet this weekend to discuss the planned takeover.
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The United Kingdom’s Panel on Takeovers and Mergers has recently proposed amendments to its Takeover Code that would change the rules regarding hostile offers in order to correct what it called a “tactical advantage” for bidders. The Panel opined that it has “become too easy for ‘hostile’ [bidders] to succeed” and that “short-term” investors (i.e., those investors who buy shares of a target company during the offer period) have unduly influenced the outcome of these hostile offers.
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According to a recent survey of 440 senior executives around the world, M&A activity is expected to increase in the next two years while major fundraising initiatives largely remain on hold. The survey showed that “respondents see M&A activity as the area where an increase in transaction volumes is most likely (49%), compared to 12 months ago, followed by an increase in IPOs (31%).” However, only 38% of corporate respondents stated that they expect to raise fresh capital in the next two years. Due to the anticipated lack of fundraising activity in coming years, competition for capital is expected to remain high and the trend of corporations hoarding cash reserves, for investment or as an eventual return to investors, may increase. In response to the survey results, Doug Guzman, Head of Global Investment Banking at RBC Capital Markets, stated that “the ability for corporations to part-fund their own transactions through cash reserves will be extremely attractive to banks, who are increasingly looking to reduce their exposure to risk.”
More information about the results of the survey, which was conducted by the Economist Intelligence Unit and commissioned by RBC Capital Markets, may be found here.
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Ernst & Young’s Capital Confidence Barometer reported encouraging developments based on the accounting firm’s ongoing study that measures corporate confidence in the global market. After surveying more than 800 executives from over 50 countries across more than 40 industries, E&Y reported that the majority of respondents predict the economic downturn will end in their industry within 12 months, with the highest level of confidence noted in the automotive industry. This is a vast improvement over the results of E&Y’s 2009 survey, and the optimism is fueled by the fact that almost half of the companies are expecting to make an acquisition in the next six months. Cash remains the single largest means of funding acquisitions, while the use of debt as a source of funding continues to decline.
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On June 3, 2010, Prudential plc announced the termination of its agreement to acquire AIG’s subsidiary AIA Group Limited. Prudential had proposed to reduce the purchase price from the original $35.5 billion to $30.375 billion due to the “significant falls in the markets” and management’s agreement “with shareholders that a renegotiation of the terms was necessary.” After AIG rejected that proposal, Prudential negotiated the termination, acknowledging that it would pay the agreed-upon termination fee of approximately £153 million ($224 million) and other costs, the total of which amount to approximately £450 million ($660 million).
Under law applicable to Prudential, approval of its shareholders was required because, among other things, AIA's value exceeded 50% of the value of Prudential. Typically, large public company transactions between U.S. domestic corporations can be structured to avoid requiring shareholder approval on the buy-side, unless the buyer is issuing a sufficient quantity of its equity as acquisition consideration. Nevertheless, it has become more common over the past few years for buyers to negotiate the right to terminate if they pay a so-called “reverse break-up fee.” The practice grew out of private equity deals, in which buyers insisted on the right to terminate if financing was not available, and in exchange for the lack of deal certainty, sellers negotiated for a termination fee. The typical range for reverse break-up fees has been somewhere between 1% and 3% of the deal value.
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On March 28, 2010, Zhejiang Geely Holding Group Company Limited entered into a stock purchase agreement with Ford Motor Company to acquire 100% of the outstanding shares of Volvo Car Corporation for $1.8 billion, with approximately $1.6 billion of that amount to be paid in cash. The sale is expected to close in the third quarter of 2010 subject to regulatory approval. The deal has not been without naysayers, particularly with respect to the fate of Volvo in the hands of a newcomer to the automotive sector best known for low-end vehicles.
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