It seems few deals these days are safe from a challenge.
It's only March and at least three bidding wars have broken out for U.S. targets. That compares with nine for all of 2015, according to data compiled by Bloomberg. Bidding wars are a natural evolution of last year's record acquisition volume. It's probably too early to call it a trend, but companies' hunger for deals is putting pressure on rivals -- or even relative outsiders -- to get involved in acquisitions to avoid falling behind. For now, at least, the original suitors seem to be weathering the attacks.
Marriott International was put on the defensive on Friday when its takeover target Starwood Hotels said it planned to accept a higher all-cash bid from China's Anbang Insurance Group. Later that same day, Thermo Fisher got some competition in its about $1 billion pursuit of cellular-analysis technology maker Affymetrix after a group of executives countered with more money. By Monday, both were back in the driver's seat. Marriott made a sweetened offer of about $15 billion including net debt that Starwood deemed superior. Affymetrix over the weekend rejected the proposal from the group of executives, citing funding concerns, and chose to stick with its original agreement with Thermo Fisher.
Neither situation is necessarily over just yet. Anbang has shown a sudden and urgent appetite to buy U.S. real estate, without too much concern about price. It reportedly agreed to pay a whopping $6.5 billion for Strategic Hotels this month -- or about $450 million more than what private-equity firm Blackstone had paid for it just months before. While Marriott can extract more synergies from a Starwood combination, any sweetened offer from Anbang may again be entirely in cash. Marriott significantly increased the cash portion of its offer, but even its improved offer is still composed primarily of stock. Getting into bidding wars with deep-pocketed Chinese buyers can be tricky, and Marriott isn’t one to overpay.
Thermo Fisher appears to be in a more secure position in the battle for Affymetrix. Origin Technologies, an entity specifically formed by the group of former Affymetrix executives to acquire the company, said on Monday that it remained committed to its proposal. But it's hard to see how it gets a deal done without further improving its offer of $16.10 a share, already a 75 percent premium to Affymetrix's unaffected share price.
Affymetrix said the sole source of funding for the proposal was $1.5 billion in debt financing via help from Chinese private-equity firm SummitView Capital and that this "falls materially short" of what is needed to complete the transaction. It's not totally clear why that's the case when the reported value of Origin's proposal is $1.5 billion, compared with a stated $1.3 billion for Thermo Fisher.
The bigger advantage for Thermo Fisher though may be timing. The acquirer is ready to close its Affymetrix purchase immediately after shareholders approve it at a meeting this week. Origin Technologies still needs to perform due diligence and obtain regulatory approvals, a process Thermo Fisher says could be challenging because it may involve a review by the Committee on Foreign Investment in the U.S. Shareholders may need an extra premium to make the jump.
There's no need for Thermo Fisher to raise its bid just yet, but it has room to pay more should it need to -- particularly when taking into account the $70 million of synergies it's anticipating by the third year. That would effectively double Affymetrix's Ebitda, making the deal seem less pricey, says Leerink analyst Dan Leonard. Using Bloomberg's merger calculator, the math can work at a higher price. Origin says that after it purchased Affymetrix, it could then combine with a genomic technology company the executives also run. Even so, it's unlikely to generate the same level of synergies that Thermo Fisher can.
Whether or not the bidding wars for Affymetrix and Starwood continue, it's unlikely they will be the last contested situations of the year -- or even of the month.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
This is based on Marriott's closing share price on Friday.
Origin has also offered to pay the termination fee that would be due to Thermo Fisher if Affymetrix walked away.
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