Unilever N.V.'s unsuccessful bid to acquire Richardson-Vicks Inc. is the most recent example of how an aggressive corporation eager to make a major acquisition can end up frustrated and empty handed in the fast-paced world of mergers and acquisitions.
Unilever, the giant British-Dutch company, is known in the United States for products including Wisk detergent, Lifebuoy soap and Close-up toothpaste. Eager to expand its presence in the United States, Unilever tried to acquire Richardson-Vicks, the Wilton, Conn.-based consumer products company, with strong brand-names ranging from Vidal Sassoon shampoo to Vap-O-Rub.
"Unilever played a high-risk hardball strategy," one investment banker said yesterday. "Sometimes it works and sometimes it doesn't."
This time it didn't. When Vicks agreed on Tuesday to be acquired by the Procter & Gamble Co. in a friendly $1.2 billion deal, Unilever not only had failed in its bid to acquire Vicks, but also had forced a company eager to remain independent to seek a friendly merger partner.
"What does Unilever get out of this?" asked James C. Freund, a partner with Skadden, Arps, Slate, Meagher & Flom, legal adviser to Vicks. "They have driven Vicks into the hands of one of their biggest competitors."
Other sources familiar with the merger negotations agreed yesterday to provide a behind-the-scenes look at what they believe were Unilever's critical mistakes in this billion-dollar merger battle. They requested anonymity.
"Where Unilever really blew this was when they came in under false pretenses several months ago and talked with Vicks about a joint venture," one Wall Street expert said. "I would have gone in up front and told Vicks exactly what I was interested in acquiring the company . Unilever told people they would never do anything unfriendly and then turned around and did what they did made a hostile takeover bid .
"That was evidence of bad faith that turned people off from day one. Where they really blew it was that early stage. It left a bad taste in everybody's mouth."
Once their desire to acquire Vicks became clear last month, Unilever's biggest tactical mistake, experts said yesterday, was in making an initial takeover bid that was too low. Unilever initially offered $54 a share; P&G agreed to acquire Vicks for $69 a share.
Since members of the Richardson family, who control about a third of Vicks stock, had made it clear the company was not for sale, the only way to have forced them to negotiate with Unilever was to make an initial takeover bid at a premium price, experts said.
"If Unilever had come in with an all-cash offer at a high number originally, the game would have been over," one source familiar with the negotiations said. "Their original proposal was $54, then $56, then $60 with conditions. The tactical mistake was that they tried to buy too cheap.
"If they had come in with a blow-out offer early on and put their best number on the table, it was clear people would sit down and talk. They were nickel and diming all the way. That was a mistake, especially since the owners of a third of the stock sat on the company's board. If they had offered $60 on Day One, they would have ended up owning us."
After making several offers that were rejected, Unilever sealed its fate, and that of Vicks, by making a coercive proposal: $56 a share if the Vicks' board of directors supported its proposal, and only $48 a share if the board did not support the offer. This offer, later increased to $60 with Vicks board approval and $48 without, was designed to force the Vicks directors to negotiate with Unilever.
The strategy backfired, insiders said. The Vicks directors were upset that Unilever had increased the pressure on them with a coercive offer and decided to aggressively seek other proposals. Furthermore, since the directors were afraid that Unilever might remove the condition and make their offer worth $60 a share under any circumstances, Vicks decided to move quickly to find a friendly merger partner.
By waiting until it was invited by the Vicks board of directors to make its takeover bid, P&G was able to create an atmosphere of good will during the negotiations.
However, Unilever suggested yesterday that the real reason it lost was simply that P&G was willing to pay a higher price for Vicks.
"The price obtained exceeds the value of the business to Unilever," said Unilever spokesman Humphrey Sullivan. "Unilever congratulates the Richardson-Vicks board on obtaining such a full price for all its stockholders."
Unilever relied on the advice of a pair of merger experts -- First Boston Corp. and Lazard Freres & Co. -- in the takeover battle.
However, other Wall Street insiders involved in negotiations suggested that Unilever, on the heels of a successful hostile takeover battle in Great Britain, did not follow the advice of its American investment bankers.
"Unilever didn't listen," one Wall Street expert said.