Ariba's Failed Agile Purchase the Latest to Founder on Economy
Mountain View, California, April 3 (Bloomberg) -- Before its stock collapsed, Ariba Inc. agreed to pay $2.3 billion of shares for Agile Software Corp. Three months later, the offer was worth $117 million. Yesterday, the companies canceled their plan.
The failed agreement between the two software companies was the latest acquisition to founder amid the stock market rout. The four largest transactions that collapsed this year had a combined announced value of almost $40 billion.
``The issue is the enormous uncertainty about the economic climate,'' Robert Cotter, U.S. head of Deutsche Bank AG's investment banking unit. ``This climate of volatility makes it difficult to close deals.''
Abandoned purchases including FPL Group Inc.'s $15.8 billion acquisition of Entergy Corp. mean the investment bankers advising the companies may receive partial payment of fees that would have run into the tens of millions of dollars. In some cases, the bankers may only get expenses.
Morgan Stanley Dean Witter & Co., Salomon Smith Barney, Credit Suisse First Boston, Lehman Brothers Holdings Inc., J.P. Morgan Chase & Co., Merrill Lynch & Co. and Thomas Weisel Partners are among advisers coming up short because of recent failed transactions.
Three in a Day
Last month, three significant mergers fell apart in a single day. In each case, executives blamed slumping shares or commodity pricing issues.
Enron Corp. Chief Executive Jeffrey Skilling said on March 23 that the largest energy trader's effort to sell Portland General Electric Co. to Sierra Pacific Resources for $3.1 billion had only a 5 percent chance of being completed.
Skilling cited reasons related to turmoil in the California electricity market, whose problems have driven the state's two largest power companies close to bankruptcy. The Portland General sale agreement was announced in November 1999, about a year before California power problems became acute.
On the same day, American Skiing Co., the largest U.S. ski resorts owner and operator, called off plans, announced in December, to buy hotel manager MeriStar Hotels & Resorts Inc. for $230 million in stock and debt.
The two companies cited economic and market conditions that made it difficult for them to complete the transaction. American Skiing shares had fallen 43 percent since the proposed takeover was announced.
Software Slump
The third purchase to fall apart on March 23 was Proxim Inc.'s proposed takeover of Netopia Inc., an Internet-service equipment provider, for $233 million.
The two companies cited current market conditions in announcing they would take separate paths. Shares of Proxim, a maker of wireless computer networking equipment, had fallen 70 percent since the transaction was first announced.
Endesa SA and Iberdrola SA, Spain's two biggest utilities, on March 5 dropped their planned 14 billion-euro ($13 billion) merger, one that would have created the world's largest utility by customers after the Spanish government imposed conditions the companies deemed unacceptable.
Fallout from California helped break apart another utility purchase on March 6, when Consolidated Edison sued Northeast Utilities, New England's largest utility, to cancel its October 1999 agreement to buy Northeast for $7.7 billion in cash, stock and assumed debt.
Power Contracts
The suit cited the risk of fixed-price contracts for power sales in 2002 and 2003. Northeast has countersued for $1 billion.
Fixed retail prices in California and unregulated wholesale prices have burdened PG&E Corp. and Edison International with $13 billion in debt.
Northeast said Edison wanted to renegotiate the price because of changes in value.
In addition to market strains, proposed mergers have come apart this year for reasons that can crop up when two different organizations plan to fuse.
In the largest abandoned transaction this year, FPL yesterday canceled its purchase of Entergy after the two utilities' leaders fought for dominance of the combined company, and FPL said Entergy gave conflicting earnings forecasts.
Entergy Chief Executive Wayne Leonard said James Broadhead, FPL's chairman and chief executive, planned to renege on an agreement to make Leonard the CEO of the new company, which would have had more utility customers than any U.S. rival.
Strategies in Doubt
Wide swings in power prices such as those experienced in California also placed the companies' risk management strategies in doubt, Entergy said.
The merger of FPL, owner of Florida Power & Light, and Entergy, owner of utilities in Louisiana, Texas, Mississippi and Arkansas, would have created a utility company with 6.9 million customers. The combined company would have had annual revenue of more than $17 billion.
By mutual agreement, the two companies agreed not to seek $215 million in termination fees, provided neither agrees to a purchase or takeover with a third company for nine months.
On March 29, Tyson Foods Inc., the world's largest poultry producer, broke off its $4.7 billion purchase of meatpacker IBP Inc., after IBP corrected some financial statements and reported fraud at an appetizer unit.
IBP, the largest U.S. beef producer, filed suit the next day, asking a Delaware judge to order Tyson to complete the acquisition.
Apr/03/2001 16:13 ET
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