Takeover fever has crossed the Atlantic.
The barrage of corporate merger activity that already has restructured much of American industry is expanding to Britain, which before last week never had seen a takeover of more than $1 billion. Last week, four such bids were announced.
And in another twist that is sending shock waves through London's financial community, three of the four billion-dollar bids launched last week were unsolicited and opposed by the managements of the target companies. These hostile moves indicate that the once-cozy club of British corporate board members is disintegrating as executives increasingly are willing to use hardball takeover tactics against one another.
In addition, analysts say that the desire to create bigger British companies that will be able to compete more effectively in global markets also underlies the surge in British mergers.
"It is an amazing ball game over here at the moment," said Philip Healey, editor of London-based Acquisitions Monthly, a new magazine that is growing along with the British buyout craze.
"It is a record many, many times over. In 1984, there were 89 completed U.K. United Kingdom public takeovers with a total value of 4.4 billion pounds. So far in 1985, there have been 94 completed takeovers with a value of 5.3 billion pounds, and there are another 34 pending bids valued at about 10.6 billion pounds. The actual scale of this is phenomenal."
At the current exchange rate of about $1.46 a pound, the total value of completed and pending deals this year in Britain is more than $20 billion, a dramatic increase over the approximately $6 billion in mergers completed last year. Healey said that because he believes the British takeover scene trails activity in the United States by about 18 months, Britain will experience a flurry of management buyouts next year as executives eager to retain their jobs try to avoid unwanted takeovers by acquiring the public companies they now manage.
"It was a busy week in London, and I think you will see more activity," said Stephen Waters, head of the merger department at Shearson Lehman Bros. "But I don't think it can keep up the pace of last week."
The four-billion-pound-plus deals announced in London last week involved some of the most familiar British companies, several of which have substantial holdings in the United States. The biggest deal launched last week was Hanson Trust's 1.9-billion-pound offer for Imperial Group, a giant tobacco and food conglomerate. Hanson's hostile bid came only days after Imperial announced its intention to engage in a friendly 1.3-billion-pound merger with United Biscuits, a move that analysts said was designed to insulate the company from unwanted bidders, including Hanson.
In the deal announced last week that appeared to have the biggest implications for global competition, British General Electric, which is not related to the American G.E., offered to acquire Plessey, a giant electronics and aerospace concern, in a 1.2-billion-pound deal. According to analysts, that proposed merger is designed to create a bigger electronics company that can compete more effectively against giant U.S., French and Japanese corporations.
Experts offer a variety of reasons for the explosion of merger activity in Britain, including a favorable regulatory climate, the availability of bank financing and the willingness of banks to get involved in hostile deals in Britain, which they once avoided. They also note a difficult economic environment in Britain that is encouraging consolidation in certain industries, as well as the need to create bigger companies that can compete more effectively in global markets.
And finally, they point to the lucrative fees that bankers who put together the deals can earn, and say stock prices on the London exchange invite bids because they do not fully reflect the underlying value of corporate assets.
In short, the explanations given for the recent surge in British merger activity sound strikingly similar to the reasons offered to explain the same phenomenon in the United States.
"It is fair to say they are beginning to see the kind of activity that is logical for an economy in that stage of development," said Sir Robert Pirie, president of Rothschild Inc. "There is a lot of money available to make these bids, and they are just beginning to learn about leverage [high levels of borrowing]. I would say this is a healthy development in the U.K. market."
Pirie said the British government's policy of allowing takeovers also is contributing to the merger boom. "What I think we have all discovered is that markets are more efficient than governments," Pirie said. "I think it is also people recognizing that the larger deals have greater profit opportunities and are perfectly financeable."
Citicorp merger specialist Kamal Mustafa is among those who say one of the key reasons for the surge in British takeover bids is that stock prices do not fully reflect the value of corporate assets. He said many British corporations, especially brewers, own valuable real estate that is not reflected in their stock prices, which therefore tend to reflect corporate earnings rather than assets.
"In many typical U.K. towns, there is the bank, the church and the pub," Mustafa said. "The bank, the church and the pub control a lot of real estate in prime territory in town, and the only one that is recession-proof is the pub. The pub has hidden real estate value and strong cash flow from its basic business. [Big] brewers own the pubs, and people are looking at brewing companies as takeover targets."
Some British companies eager to increase their holdings in the United States are finding that one way to do that at home is by acquiring British companies that have significant U.S. operations, according to Martin Sikora, editor of Mergers & Acquisitions magazine.
Sikora, who recently attended a conference on takeovers in Britain, said another force behind takeover activity there is that large stockholders, who once sided with the target company's management, gradually are joining their U.S. stockholding counterparts by favoring whatever party offers them the greatest short-term stock profits.
While the complex debate in the United States over whether mergers are good for the economy and society continues, some people overseas are questioning the motivation behind the increase in British mergers.
"Some of the bids have no commercial logic at all," Acquisition Monthly's Healey said. "One of the motivations is that there is a lot of money around and the banks are looking for different areas to make loans."