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Boom-time for Euro M&A
November 19, 1999: 11:11 a.m. ET

Deal volumes surge to record level, hostile takeovers catch on
By staff writer Rod Cant
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LONDON (CNNfn) - The Barbarians are finally at Europe's gate.
     For years, hostile takeovers were limited to boardrooms in the United States. But, as the world becomes more global, the number of unfriendly suitors knocking on the door of European companies appears to be on the rise.
     And, judging by the latest deal, Vodafone AirTouch's $128 billion bid for Germany's Mannesmann, the stakes are only going to get higher as merger mania sweeps Europe.
     According to information from Thomson Financial Securities Data, of the 10 largest hostile takeover bids globally, seven were by European companies, and all but one of those took place in 1999. The deals include:
     Counter-offers from French oil firms TotalFina (PFP) and Elf Aquitaine (PAQ) for each other, Olivetti's strike at Telecom Italia, Bank of Scotland's (BSCT) unfinished bid for National Westminster (NWB) and BNP's (PBNP) takeover of Société Générale (PGLE).
     The exception was colorful financier Sir James Goldsmith's attempt to break up British American Tobacco (BATS), which was worth $21 billion even back in 1988.
"The battleground is Europe"

     "Previously, the United States dominated global M&A activity," Hugh Scott-Barrett, chief executive of ABN Amro corporate finance told, "but the battleground is now in Europe."
     So far in 1999 deals worth a record $1.21 trillion have been announced by European companies. Thomson calculates this number represents 40 percent of the total volume of European deals over the past five years. The figure is a 64 percent increase over the figure for 1998, although that was also a record.
     Thomson calculates that U.S. deal activity in 1999 is worth $1.5 trillion, the same level as last year.
     Previously deal-shy Europeans are fighting to catch up with their cousins from across the Atlantic, as the benefits of critical mass become apparent, and restrictions on deals fall away.
Olivetti broke the mold

     The hostile takeover by Olivetti of Telecom Italia earlier this year was a mold-breaking deal, involving an upstart telecom company leveraging its balance sheet for an assault on a much bigger rival, very similar to the corporate raid on RJR Nabisco in the 1980's that inspired the book by Bryan Burrough and John Helyars called "Barbarians at the Gate".
     Olivetti proved such deals can be done, and Scott-Barrett says the Mannesmann-Vodafone battle will also be a crucial test case.
     "It depends on whether Mannesmann fights Vodafone on shareholder value grounds, or uses its legal protection." Mannesmann's articles of association prevent any shareholder voting more than 5 percent of the shares, no matter the size of their holding.
     There's more to come, whatever the outcome of the telecom battle. Driving this investment revolution are a number of factors:
     "Increasingly, shareholders in continental Europe are taking a much more 'Anglo-Saxon' view of shareholder value," according to ABN Amro's Scott-Barrett, who also cites a greater willingness among U.S. financial institutions to invest in Europe, and the introduction of the single European currency.
     Deals are spread across a variety of sectors, from telecom to banking and retailing. Britain's retail sector has been thoroughly shaken up by the arrival of Wal-Mart (WMT) following its takeover of supermarket chain Asda, and big deals have followed in continental Europe.
U.S. banks enter Europe

     As part of the boom, U.S. investment banks have been powering up their European operations. These bankers have highlighted trends, such as banking consolidation, which have been a major factor in U.S. markets.
     Despite the striking change in European activity, some hurdles remain. In particular, most takeovers and mergers so far have occurred within national borders, and there is still some resistance, especially in sensitive sectors such as banking, to the notion of predators from overseas gobbling up national players.
     "Ultimately, these national barriers will come down," according to Scott-Barrett, who predicts industries will polarize into oligopolistic market leaders and much smaller niche players, with those companies in the middle ground fighting a difficult battle for survival.
     "In 2000 we're set to see a further year of very substantial corporate activity in Europe."Back to top


Vodafone bids $128B - Nov. 19, 1999

German M&A rules in focus - Nov. 16, 1999

Europe's M&A minefield - June 18, 1999