It is time to grade this year’s notable deals. It was a year of innovation and heightened deal-making as inversions became the rage, shareholder activists adopted more aggressive and novel strategies, the hostile takeover rose from the dead and the American deal market revived while Europe and Asia were moribund. In other words, just another year in the deal world.
Inversions became de rigueur as American companies fled our shores seeking lower taxes. But it all came to a screeching halt when the Treasury Department’s new rules effectively blocked the manoeuvre. Some would-be emigrants like the drug company AbbVie, which tried to acquire its Irish rival Shire, quickly became renewed patriots, abandoning their acquisitions. Others like the medical device maker Medtronic, which agreed to acquire Covidien of Ireland, remained steadfast in trying to flee the US.
An F goes to the investment bankers who peddled this transaction structure to anyone who would listen, destroying it through overuse and controversy. However, an A- goes to Burger King and Tim Hortons for pushing through a sensible inversion strategy. It simply made good sense for the combined company to be in Canada, where the stronger business was located.
Apple acquired Beats in a $ 3-billion transaction in search of a strategy. Other head-scratching technology deals included Facebook’s $ 22-billion acquisition of WhatsApp, a company with virtually no revenue, and Google’s $ 3-billion purchase of Nest, primarily a thermostat company. It was a feeding frenzy that minted a number of billionaires, but it remains to be seen whether this is yet another wasteful spending orgy. For now, the tech acquisition spree gets an Incomplete.
The Alfred E Neuman “What, me worry?” award
The award (a framed picture of Neuman signed by me) goes to Jack Ma, the executive chairman of the Chinese tech giant Alibaba. Ma and Alibaba pulled off a $ 25-billion initial public offering, the largest ever despite a corporate governance structure that placed enormous power with Ma and his Alibaba colleagues and the fact that shareholders invested in a company that didn’t even own Alibaba’s Chinese assets. Critics, including me, warned that shareholders would one day rue this risky investment, but investors either ignored these warnings or disagreed.
Bring it on (Part I)
Activist hedge funds remained unafraid of trying new and aggressive strategies and found successful results. Related Fund Management and Corvex Management refused to back down in the face of an unbelievable scorched-earth defense by Barry and Adam Portnoy at CommonWealth REIT. When Related and Corvex brought in Sam Zell in a proxy fight to unseat the Commonwealth directors, you knew it was done, and the rare overthrow of a REIT’s management occurred, earning the two hedge funds an A and the Portnoys an F.
Bring it on (Part II)
Valeant Pharmaceuticals and the activist hedge fund Pershing Square Capital Management tried something more than clever, teaming up in anticipation of Valeant’s making a hostile offer to acquire Allergan. The manoeuvre led to complaints that the two had abused the securities laws, leaving a lingering lawsuit. Allergan fought tooth and nail. Unlike a similar contest that another company, Airgas, had faced, Allergan did not have a staggered board to make itself bulletproof. Instead, Allergan managed to find a buyer, another pharmaceutical firm, Actavis, which is buying the company for $ 66 billion. Allergan shareholders and Pershing Square made billions while Valeant had to settle for $ 300 million or so. Allergan and Pershing Square get an A, and Valeant an F, showing that once again, the activists win even when others don’t.
The termination of the Omnicom/Publicis deal showed that ego still rules in deal-making. The huge $ 35-billion merger crashed when the two companies couldn’t agree on who would be the chief executive. This, after having the deal outstanding for a year. Both sides earn an F.
There but for the grace of god
Goldman Sachs made an embarrassing error when it advised Tibco Software in its acquisition by Vista Equity Partners. The investment bank miscalculated the number of Tibco shares outstanding on a spreadsheet given to Vista. Vista bid $ 4.3 billion but ended up paying $ 100 million less because of the error. The Tibco board took a pass on trying to penalise Goldman, and the deal moved on, with even the Delaware courts finding no foul. Goldman’s error led all to scrutinise their spreadsheets a bit more, for the time being at least. This is an obvious F, though it is a sin any of us could have committed.
© 2014 The New York Times