Will the Gloves Stay On?

It’s still early in the m&a rebound but the bidding wars already were heating up by February. In some of the higher-profile battles, Verizon Communications beat out Qwest Communications to nab MCI in the telecom arena and Hollywood Entertainment was clinging to its agreement to merge into smaller Movie Gallery while spurning overtures from video/CD rental giant Blockbuster. And in a rare three-way contest in semiconductor production tools, KLA-Tencor and Rudolph Technology were stalking August Technology, which had a merger agreement with Nanometrics. Each contest had its own story – consolidation in telecoms, quest for scale to meet upheavals in video/CD rentals, technology position in semiconductor inspection equipment. Yet there is also a central theme that extends into mergers and acquisitions in general. Many deals are being done for growth, as we reported in our February issue, and the fear among many contestants is that if they don’t win the prize now, they’ll miss a growth opportunity. If that scenario plays out, it’s likely that more contested deals of all sorts will punctuate the m&a market. That would include the make-your-best-offer propositions like Verizon and MCI, the “gray knight” attempts to upset existing agreements like Blockbuster’s, and straightforward hostile deals, which have been rather rare recently…but for how long? So far, the contestants have slugged it out in a business-like manner – we’re a better buyer, we offer more value, we’re more shareholder-friendly. That’s far better than calling the other side and its management names, which wasn’t uncommon in past deal waves when hostility was indeed hostility. But it may be wishful thinking to believe that civility will reign forever. When the stakes get higher, anything goes. Martin Sikora Editor Copyright 2005 Thomson Media Inc. All Rights Reserved. http://www.thomsonmedia.com http://www.majournal.com