It's a bank holiday in the UK, so we're going to keep things extra snappy in today's DD. By now, you will have heard the news: Melrose Industries, a listed entity focused on raiding and trying to improve troubled companies, has succeeded in pulling off a £7.9bn cash-and-shares takeover of GKN.
The biggest hostile UK takeover battle since Kraft Foods acquired Cadbury in 2009 required Melrose to receive 50 per cent + 1 share of the votes from investors in GKN ahead of a 1pm deadline on Thursday. The group received 52.43 per cent of the votes, prompting jubilation and relief in the Melrose camp.
Things were grimmer for GKN's management team, who were widely seen as having put forward a very strong effort to preserve the 259-year-old engineering company. OK, well, sort of preserve: GKN was set to break up the company by merging its automotive division with US-based Dana Incorporated. That £6bn merger is set to collapse as a result of the deal with Melrose.
The FT's Lombard editor provides a very good run through of the winners and losers here. One big loser from his list is UK business secretary Greg Clark, writes Lombard:
He has indicated that he will review Melrose’s post-offer undertakings on GKN’s future ownership and investment, and could yet intervene if not satisfied. Now he has a difficult decision: can he use a public interest test to block a deal that some still oppose, but the company’s owners have accepted.
So what swung it? A lot of attention in the run-up to investors placing their bids focused on the role merger arb funds would play, with estimates that they held around 25 per cent of GKN shares. But it seems what clinched it for Melrose was in fact passive fund managers. A serious amount of anger from the GKN camp is being directed at Legal & General Investment Management, a passive investor which held 2.6 per cent, that helped push Melrose and its leadership over the top.
This may be the last that DD writes on the deal for a while, but we leave you with one thought. This battle was fought in very black and white terms. Corporate raiders versus experienced leadership. Short-term capitalism versus long-term stewards. Pragmatism versus nationalism.
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Q1 M&A wrap
The maxim at the start of 2018 for dealmakers was that bigger is better. And that's exactly what companies and private equity firms did in the first quarter of 2018.
The value of $5bn-plus deals more than tripled against year-ago levels, with more than 20 deals worth at least $10bn, according to data provider Thomson Reuters. Chief executives embarked on a series of mega deals across the world, leading to a boom in cross-border M&A.
Below, DD's team selected four more charts that best encapsulate the first quarter of dealmaking in 2018. It crossed the $1.2tn mark, the fastest ever start for global mergers and acquisitions.
Boutiques overtake big banks in fees
Morgan Stanley dethroned its rival Goldman Sachs from the top of the world’s M&A rankings in the first quarter of 2018, due to a consistent pipeline of megadeals. But the interesting nugget is that fees in Q1 for boutique investment banks — such as Centerview, PJT and Perella Weinberg — converged with those of the top big banks.
Cross-border boom, but will it last?
Donald Trump may be sending the wrong signal to foreign investors by blocking Broadcom's $142bn attempted takeover of rival chipmaker Qualcomm, but cross-border M&A was at an all-time high, accounting for more than $511.7bn in overall activity. That is up 76 per cent from the same period a year ago and advisers see no sign of a slowdown. Will it last? Unclear. For the time being, appetite for bold global deals remains unchanged.
Strong private equity dealmaking
Global private equity deals have enjoyed their strongest start in five years, buoyed by the record amounts of cash flowing into the sector as institutional investors look for ways to boost their returns. Buyout-backed transactions totalled $79.7bn in the first quarter, a 30 per cent rise from a year earlier.
China's mega slowdown
Chinese companies spent just $25.2bn on overseas assets in the first quarter, while the number of deals fell to the lowest mark since 2005. Bankers and lawyers in Asia are blaming regulatory uncertainty and jittery relations between the US and China for a 15 per cent decline in Chinese cross-border dealmaking.
Elon Musk is in control
Score one for the Delaware plaintiffs bar. The beleaguered lawyers who represent shareholders upset over M&A deals have had a tough couple of years. The lawsuits that challenge deals over inadequate price or conflicted boards have become much trickier to win or even bring. And so collecting Elon Musk’s scalp on Wednesday must feel pretty good.
Shareholders of Tesla had challenged the company’s $2.6bn buyout of SolarCity in 2016, alleging that the Telsa board bailed out troubled SolarCity by acquiring it in order to benefit Musk. Telsa asked the Delaware Court of Chancery to toss out the suit, arguing that the Telsa board did not deserve excess scrutiny since the company’s shareholders voted in favour of the deal.
Vice Chancellor Joseph Slights disagreed, finding that Musk, even with just a fifth ownership of the electric car maker, still exercised control of the company. As such, the deal deserved a higher standard of review (”entire fairness”, for the nerds at home) and the shareholder allegations deserved to go to trial. Read our news story for the key excerpts from the decision that explain the court’s rationale.
Barclays’ one-time head of markets Joe Corcoran has left the bank less than a year after being moved to a vice-chairman role. New York-based Corcoran was replaced as head of markets last May under a reshuffle by investment bank boss Tim Throsby. The bank confirmed he left last month “to pursue other opportunities”.
Okapi, the proxy solicitor firm, has hired Alexandra Higgins from ISS to be its new specialist on environmental, social and governance (ESG) matters.
UK pizza bubble Once famed for spinning dough from dough, the frenzied expansion of Italian restaurant businesses in the UK over the past decade is unravelling as costs rise and consumers retrench. (FT)
Bad behaviour Four women filed restraining orders against one of Morgan Stanley’s top financial advisers, accusing him of violence. The US bank knew about the alleged conduct. He kept his job. (NYT)
Volkswagen’s great escape Emboldened by the company’s rapid rehabilitation after its emissions scandal, Volkswagen chief executive Matthias Müller, 64, is attempting to reimagine the world’s largest auto company for the electric age. (Bloomberg Businessweek)
Is Vanguard too big? Some customers are starting to think the $5.1tn money manager, which pulled in the equivalent of more than $1bn a day in 2017, is being strained by its success. Vanguard has faced a number of complaints with technical problems and administrative issues over the past year. (WSJ)
Uber in talks with Ola to merge Indian operations (FT)
Nissan, Renault in talks to merge, create new company (BBG)
CME/Nex: premier crew (FT Lex)
Asian investors pump cash into overseas real estate (FT)
Mediapro offers a combustible mix of sport and politics (The Economist)
Embattled Dubai fund Abraaj will trim about 15% of jobs (BBG)
Retailer Conviviality to file for administration (FT)
Josh Kushner’s Oscar Health lands $3.2bn valuation (WSJ)
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