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Europe embraces hostile raid culture

Aggressive US-style corporate restructuring is set to become the norm on this side of the Atlantic

Peter Koenig
Sunday 04 April 1999 00:02 BST
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HOSTILE takeovers, leveraged buy-outs, and other controversial financial practices used by US investment bankers to shake up and restructure American industry over the past 15 years are set to surge here, according to City executives.

"T Boone Pickens is alive and well and living in Europe," declared Philip Keevil, Salomon Smith Barney's head of European mergers and acquisitions.

Referring not only to Pickens but to everyone loosely tagged as a corporate raider, Mr Keevil painted a picture of Europe on the verge of a root-and- branch industrial restructuring which will make the hostile bids by Olivetti for Telecom Italia and Banque Nationale de Paris for Paribas and Societe Generale seem like straws in the wind.

Forty-one per cent of the $855bn (pounds 533bn) in corporate deals chalked up worldwide in the first quarter occurred in Europe, up from 30 per cent a year earlier, according to Securities Data Corp.

Bankers see this trend accelerating. "There will be times when European merger volume will be higher than American volume - maybe for a quarter, maybe a year," Goldman Sachs global M&A chief Mac Heller said.

Much of the expected increase in European M&A activity is likely to violate established traditions. Typically, European bankers shy away from hostile bids. But, said Chris Ward, head of advisory services for accountants Deloitte & Touche: "Private equity providers may increasingly have to look to go hostile to win transactions."

Traditionally, public-to-private deals - in which companies are effectively de-listed, restructured, then sold off in their new form either to rivals or to new public investors - have been a marginal feature of European investment banking.

Last month, however, the Nottingham University-based Centre of Management Buy-Out Research reported that public-to-private transactions in the first quarter accounted for 30 per cent of the pounds 3bn total value of the UK buy- out market. Aggressive European venture capitalists like Cinven are doing more and bigger public-to-private deals. US leveraged buy-out specialists like Kohlberg Kravis & Roberts of Barbarians at the Gate fame are opening European offices. The big European banks are hoping to muscle in on both.

"We see tremendous growth in this area," said Graeme White, managing director of Barclays Private Equity.

US-style corporate restructuring has a limited history in Europe. It has been the preserve of a few native mavericks like Martin Ebner, the Swiss financier whose challenges to the management of Union Bank of Switzerland contributed to UBS's effective takeover by Swiss Bank.

It can be traced back to the aborted hostile mega-bid in the UK in the early 1990s by a Lazard Brothers-backed consortium for GEC and by Jacob Rothschild and the late James Goldsmith's unsuccessful bid for BAT. But the advent of the euro makes cross-border M&A easier. The willingness of funds like Mercury Asset Management to get aggressive with sluggish managements makes hostile deals easier.

On the back of these developments US financial entrepreneurs - the smoother, more sophisticated descendants of 1980s corporate raiders - want to diversify into Europe.

"The US is looking pretty exhausted as an arena for corporate restructuring. Europe is bigger and decades behind," said a City banker.

"[Financial firms like KKR] currently have $750bn invested worldwide, virtually all of it in the US," said Michael Klein, global head of Salomon Smith Barney's financial entrepreneurs group. "In a three- to five-year time frame they will invest another $600bn. Twenty to 25 per cent of that capital is targeted towards Europe."

Klein notes that Europe is now developing a high-yield, or "junk", bond market. "You now have all the ingredients you need for corporate restructuring," he said.

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