The corporate takeover spotlight has shifted from the oil patch to the media industry this year, with overall merger activity continuing at about the same rapid pace as last year.
One trend that has accelerated this year is the adoption of antitakeover provisions by major corporations. More than 200 of the S&P 500 corporations added measures that make takeovers more difficult, according to Jamie Heard, deputy director of the Washington-based Investor Responsibility Research Center. The antitakeover provisions do not deter a determined bidder, but they probably make these companies less likely to become the target of hostile takeover bids in the future, Heard said.
While the three biggest deals of 1984 were in the oil industry, with Chevron Corp. acquiring Gulf Corp. for $13.3 billion, Texaco Inc. acquiring Getty Oil Co. for $10.1 billion, and Mobil Corp. acquiring Superior Oil Co. for $5.7 billion, 1985's biggest deals have been spread through industries ranging from health care to aerospace. Some of the most exciting takeover activity has been concentrated in the media industry, where two of the three major television networks have been involved in major transactions.
American Broadcasting Cos. Inc. agreed to be acquired by Capital Cities Communications Inc. last March in a friendly $3.5 billion deal that is scheduled to be completed in January. That deal has led to one of the largest single divestitures of media properties in history, as the companies have agreed to sell various television, radio, newspaper, and cable television operations to comply with Federal Communications Commission regulations limiting ownership of media properties.
CBS Inc. escaped a hostile takeover attempt by Cable News Network founder Ted Turner in July by repurchasing nearly $1 billion of its own shares and adding hundreds of millions of dollars in debt to its balance sheet. Turner, eager to make a deal, turned his attention from New York to Hollywood and promptly entered into an agreement to purchase MGM/UA Inc. in a friendly $1.5 billion acquisition that would give him a vast library of classic films and a major production studio if the transaction is completed.
Meanwhile, the Tribune Co. of Chicago and media magnate Rupert Murdoch set new standards for the value of independent television stations (stations not affiliated with the major networks). Tribune Co., which already owned independents in New York and Chicago, agreed to pay a record-setting $510 million for Los Angeles independent KTLA-TV, while Murdoch agreed to pay about $2 billion for seven independent stations owned by Metromedia Inc. Neither of those transactions can be completed until they receive FCC approval.
The steadiest stream of takeover activity nationwide continues to be in the banking industry, where many of the regulatory barriers to out-of-state ownership of banks have been eliminated. Additional consolidation among financial institutions is expected.
"We are not seeing the oil deals bigger than $10 billion that we saw last year, but we are still seeing a lot of big deals," said Martin Sikora, editor of Mergers and Acquisitions magazine. "There have been a lot of deals in the $1 billion to $7 billion range. Overall, in the first half of this year, we have counted about 1,500 deals completed, and that is about half of what we had in the full year 1984. Last year in the oil industry we saw mergers; this year we are seeing restructuring and retrenchment."
Sikora's oil industry restructuring has included multibillion-dollar programs at Phillips Petroleum Co. and Unocal Corp. to "enhance shareholder value" by repurchasing stock, adding debt to the balance sheet, and shrinking the corporate base by selling assets. In both cases, the restructuring was designed to thwart hostile takeover bids from Mesa Petroleum Chairman T. Boone Pickens Jr.
Atlantic Richfield Co., which had been rumored as a takeover target, announced a similar restructuring program, while Pickens announced a plan to convert Mesa to a partnership that will cut back on new drilling and distribute cash flow from producing properties directly to shareholders. Pickens will no longer use Mesa as a vehicle to launch hostile takeover bids.
While corporate raider Carl Icahn attempts to complete the acquisition of Trans World Airlines Inc., surprising those observers who thought he was interested only in trading profits and not in acquiring a major U.S. corporation, Pickens is on the sidelines. He says he has no desire to attempt hostile takeovers as long as corporations are allowed to use defensive tactics that entrench management by discriminating against certain shareholders.
Pickens' bid for Unocal was blocked when the company announced an exclusionary tender offer, upheld by the Delaware courts, that allowed the company to buy back shares from everyone except Pickens. Both the Securities and Exchange Commission and Congress are considering measures to outlaw that powerful defensive maneuver.
The most popular antitakeover provisions adopted by major corporations at their annual meetings this year were fair price provisions and classified boards of directors. The fair price provisions require supermajority stockholder approval (approval of more than 75 percent in many cases) of takeovers, unless the board of directors favors the deal or unless stockholders would receive the same price for all of their shares. The provision is designed to deter two-tier bids, in which a bidder offers cash for 51 percent of the stock and securities with less value for the rest.
The classified board of directors provision staggers the terms that directors serve and is designed to make it more difficult for a hostile bidder to gain control of a corporate board in a short period of time.
"There were more companies this year than in any previous year that asked shareholders to approve antitakeover charter amendments," IRCC's Heard said. "Instead of going for one or a couple of provisions, companies were going for everything they could get. We only identified a dozen out of more than 400 proposals that did not pass.
"These proposals don't really deter someone determined to take over a company. They probably scare away some people who never make an offer. Maybe at the margin they have some impact," he said.