A Veritas memo discusses the increase in hostile takeover activity in recent months and offers some tips on takeover preparedness. This excerpt reviews some of the market forces that have led to a resurgence in hostile bids:
In the past few months, hostile takeovers have been making a comeback, starting with the battle for CoreLogic in June. At the time of this article, more than a dozen unsolicited takeover bids are already underway. This not surprising. Historically, hostile activity has increased following market downturns, most recently after the 2008 Financial Crisis. The COVID-19 crisis is similar in that regard. The pandemic has caused severe dislocations in the stock market. Even though the major indices have recovered since the market nadir in March, the recovery has not treated all companies equally. Countless companies continue to suffer from depressed share prices.
This phenomenon is not limited to the industries hit hard by the pandemic, such as oil and gas, travel and entertainment. The reality is that some companies have fared better during the crisis than others, regardless of the industry. For many companies, even a 100% premium to its current share price is below its 52 week high. These companies, many of whom enjoy enviable market positions, are affordable now for competitors, private equity funds and other potential acquirors, including hostile bidders, even at significant premiums.
The memo says that activist hedge funds, which were sidelined by the pandemic, are looking for new ways to deploy capital. As a result, activists are not only prepared to support hostile bidders but launch their own unsolicited takeover bids — either alone or in partnership with a strategic buyer or PE fund.
-John Jenkins, DealLawyers.com December 14, 2020