Pavlov. Thanks for your analysis. We respectfully disagree. In our opinion and experience, the best time to take out your competitors is when they are in fact experiencing difficulty. Why?
1] When your competitor is strong, there is a premium to pay due to the synergies and benefits accruing to the purchaser/competitor. This differs from the situation where a purchaser/new player makes a bid.
For example, Chrysler could be squeezed for a higher purchase price than Fiat, if both were attempting to takeover Ford. At the end of the day, any benefit which would have accrued is negated by the fact the purchaser paid for it;
2] When your competitor is weak, there is less competition to takeover bids. This is especially true in this day and age of huge mergers and acquisitions, where we are seeing more and more cross-industry activity. For example, a large distiller purchases a large Hollywood Studio. This only occurs when the target is strong and the purchaser is looking for diversification into other fields. When the target (in this case UCB) is weak, the only people that have an interest are those within the industry. As such, less chance of a higher bid coming in from elsewhere.
3] When your competitor is weak, it usually implies the company has gone through some losses. As such, there is usually a component of taxable benefit to the takeover. In Canada, tax losses can only be utilized by companies that engage in the same business as the entity which suffered the losses. Gone are the days when losing companies could shop themselves around to anyone with a profit. Today, in order to utilize those losses, you either have to take the loser and make it profitable or you have to derive your revenue from essentially the same business.
In this case, UCB had definite tax losses that ALE will be taking advantage of. At the same time, with no other bids in sight, we would believe that ALE was pretty much able to set their own price, within reason.
Regards,
Agora. |
