A wave of dealmaking has come to Europe, and corporate boards aren’t sure what to do about it.
Listed European companies have received about $40 billion in takeover bids over the past three months, as everyone from Blackstone Inc. to Cinven hunts for bargains in the region’s depressed stock markets. In several cases, the target’s directors can’t decide whether minority shareholders are getting a good deal.
Online classifieds firm Adevinta ASA and medical diagnostics provider Synlab AG recently announced private equity offers which their boards believe don’t reflect their long-term value. Both of them took the unusual step of deciding not to make a formal recommendation on whether shareholders should accept, telling investors to take their own call.
“Target boards are quietly slipping away from issuing clear recommendations, opting for qualified (on-the-fence) positions,” said Josh Rosen, an analyst at United First Partners.
EBay Inc.-backed Adevinta said Nov. 21 its independent board members think the company can generate greater value over time than the cash buyout offer from Permira and Blackstone, valued at €14 billion ($15 billion) including debt. Still, the price is “within the range” of what’s fair and some risk-averse investors may want to sell, it said in a statement.
The private equity firms are touting the 54% premium being offered to Adevinta’s three-month average price before news of their interest emerged. Adevinta directors noted the company’s stock had been in a slump — making the premium look higher — and asked the suitors to increase their bid and modify its terms. Both requests were effectively refused.
After three months of negotiations, board members felt there were limited alternatives — given the deal is supported by major investors owning a combined 72% stake — and decided they’re compelled by Norwegian regulations to present the offer to shareholders. Adevinta’s chief executive officer is accepting the cash bid, while board members will roll over half their stock holdings and cash out the remainder.
MKP Advisors CEO Mark Kelly said it’s become more difficult for boards to reject takeover bids, since they know the higher-rate environment makes it harder for buyout firms to come back with a bump.
Tough Decisions
“Many boards can’t unequivocally say ‘yes’ when they feel their shares were previously being materially undervalued by the equity market,” Kelly said. “But at the same time, high-percentage-premia offers look attractive if shareholders aren’t backing them in the organic re-rating they desire.”
Munich-based Synlab said earlier this month its management and supervisory boards see a €2.2 billion bid from buyout firm Cinven as “inadequate” from a financial perspective, and two separate fairness opinions back up that view. Still, after the board held talks with other interested parties, Cinven’s offer was “the most attractive in the current environment,” and the German company said it appreciates Cinven’s support for its strategy.
Synlab’s management and supervisory boards ultimately abstained from making any recommendation and concluded that each investor “has to decide for him- or herself.” All of Synlab’s management board will tender their shares.
Billionaire activist Paul Singer’s Elliott Investment Management revealed this week it’s built a position in Synlab. Its shares closed Thursday at nearly 11% above Cinven’s offer price.
Given the economic climate and uncertainty, there’s a greater likelihood of a valuation gap between suitors and target companies, according to Nick Bryans, a London-based partner at law firm Baker McKenzie.
“For private equity suitors, many of the companies that are available now likely look cheap, but are probably cheap for a reason,” MKP’s Kelly said. “Many of the higher-quality companies that could be bought were bought when financing could be secured more cheaply and easily.”
Some deals are being challenged. In October, German automotive supplier Vitesco Technologies Group AG received a €3.6 billion takeover bid from another company backed by its billionaire major shareholders. David Einhorn’s Greenlight Capital has called on Vitesco to seek an improved bid or pursue other alternatives.
Investor Concern
Vitesco’s management and supervisory boards have made multiple public statements acknowledging some shareholders view the offer as too low. They’ve also vowed to consider how to protect Vitesco’s future success within a larger corporate group.
Meanwhile, an independent committee evaluating BP Plc and Adnoc’s $2 billion offer for 50% of NewMed Energy has asked the oil and gas giants to substantially increase their bid, Bloomberg News reported in October.
As market conditions continue to deteriorate, more situations could emerge where target boards find it difficult to make a clear recommendation to minority holders.
European payments giant Nexi SpA, whose shares are down more than 60% from their peak, is getting takeover interest from private equity firms including CVC Capital Partners. Fund distribution platform Allfunds Group Plc has started gauging takeover interest from buyout funds, Bloomberg News reported this month. Its shares are down nearly 70% since late 2021.
--With assistance from Kwaku Gyasi.
(Updates with Elliott stake, Synlab trading in 12th paragraph)
Author: Swetha Gopinath, Dinesh Nair and Eyk Henning
