The heated auction between buyout firm Bain Capital and Austria’s AMS AG for the German LED-maker Osram Licht AG has ended in no deal. The prospect of a transaction being rekindled in the near term looks bleak — though not impossible over the longer run. It beggars belief that a tense round of bidding can culminate in no more than a tangled mess. But this is regrettably often the way with German M&A.

AMS, which makes sensors and supplies Apple Inc., made a tactical error last week by raising its offer to 4 billion euros ($4.4 billion) from 3.7 billion euros to pre-empt a possible counter-bid from Bain and fellow private equity firm Advent International. It had already lowered the acceptance threshold (the level of shareholder support it would require before pushing ahead with the deal) to just 63% of Osram’s shares. Yet its sweetener sowed confusion. Retail shareholders didn’t tender to its supposed knockout offer in big enough numbers.

Meanwhile, some of Osram’s hedge fund investors probably withheld their support, believing that they could squeeze more money later from AMS for their own shares — a gambit that has backfired for now.

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Osram shareholders currently have no deal at all and the path to a transaction is long and winding. By default, AMS can’t rebid quickly without the assent of both Osram and Germany’s financial regulators. It would have to demonstrate that any fresh offer would have a better chance of succeeding. That would mean sweetening again, either through the price or by cutting the acceptance hurdle one more time. AMS’s lenders may balk at either approach.

The Austrian company’s only certain way of reviving the takeover is to build an Osram stake exceeding 30% by buying shares in the market. That would trigger a requirement to bid under German takeover laws. The snag is that AMS can’t amass that size of stake without securing certain antitrust approvals first.

These dynamics should play into the hands of Bain and Advent, although they’ll have to counter the fact that AMS has already amassed a 20% stake in Osram. As such, a bid from the buyout firms would have to be at a level that forces AMS to sell. Implicitly that would be more than what it paid for its stake, assuming the Austrian group doesn’t simply need to raise cash at some point.

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Maybe Osram’s management will discover some new selling point that would persuade Bain and Advent to make a punchy proposal. But it would need to dig up some real gold. There’s no justification at present for the private equity firms going higher when they don’t bring the cost savings that you’d get from merging two industrial companies.

Having blown the best part of 800 million euros on that blocking stake, AMS still looks best place to prevail in the end. But unless something changes, the end — and a final price — could be some way away.

To contact the author of this story: Chris Hughes at chughes89@bloomberg.net

To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

©2019 Bloomberg L.P.

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