Activism, whether celebrated or maligned, is often associated with “shaking up” the companies in which the activist invests. However, there are instances when an activist looks to resist the ultimate shake-up and initiates a campaign against a merger or acquisition. Perhaps the activist is concerned with the long-term strategy the M&A deal represents; however, the activism campaign is often from the target side of the transaction and rarely blocks the merger. Typically, the activist campaign is merely to agitate for a higher offer and maximize the value of the deal for the target’s shareholders.
FactSet SharkRepellent identifies 283 campaigns initiated by an activist owner on the target side of an M&A transaction, compared to only 47 campaigns from the acquirer side. In no transaction was there activism from both sides of a transaction. While this may suggest that activists are overly focused on boosting their own short-term profits, the increased value to the target shareholders suggests that either the target’s Board of Directors is not fighting strong enough for shareholders or there is a free-rider problem where shareholders rely on the activists to bear the costs of the campaign.
In the 283 campaigns on the target side, 142 were deemed successful in regards to extracting a higher price from the acquirer. The success could be from attracting a competing bid from another acquirer and/or having the original bidder increase the offer. In 12 of the 283 campaigns, and eight of the successful campaigns, the primary campaign type was not to block the merger, but rather to maximize shareholder value or obtain board representation/control. Although only 11 of the 283 campaigns include reliable costs incurred by the activist, the average cost was around $1.4 million. Given the activist likely owns only a small portion of the company, the increase in the purchase price would need to be significant in order for the campaign to be not only successful, but profitable.
FactSet MergerMetrics tracks M&A deals, and for deals that are no longer pending, the target of the activist campaign was still acquired by the original bidder in 71% of deals. Of those deals completed by the original bidder, 69% did not increase the value of the offer to the target shareholders. For the deals where the acquirer did increase its offer, the average increase was 26%. For all the deals tracked in MergerMetrics, only 11% had the original offer increased and the average increase for those deals was 12%.
For the deals where the original bidder did not complete the acquisition after the target’s activist tried to block the merger, there was only one that cited activist pressure as the reason for withdrawing from the deal, although an additional eight did cite a general lack of shareholder approval. Three of those nine deals included the acquirer offering to raise the transaction value, although the highest increase in the offer was only 22%, which is below the average increase for completed deals at 26%. In 33 deals the activist opposed the offer of the original bidder and the deal ultimately saw a competing bid. Of those deals, the original bidder still acquired the company in 21 situations.
In deal jumping situations that involved an activist on the target side, the activism was against a friendly bidder in 30 of 38 situations. The winning bidder increased the original offer in 60% of situations, but in 65% of situations the highest bidder did not complete the acquisition. The average difference between the first offer from the original bidder and the highest offer price was 23%, with the first competing bid being on average 13% higher than the original offer. Deal jumping situations do cause the final acquisition price to be higher than the original offer twice as often relative to deals where the acquirer had only the activist to manage, but the increase in the offer value was lower for the subset of deal jumping situations. However, the 23% increase is higher than the 17% increase for the complete universe of deal jumping situations.
Perhaps competing bids have more to do with strategy of the merger, or perhaps the acquirer is more comfortable buying the activist’s approval when there is less risk of having to also top a competing offer. Alternatively, the acquirer may be discounting the increase in the offer given that it avoids the cost of having to pay termination fees. The acquirer had termination fee liability in 47% of the deals where the activist did not approve of the merger and the average maximum fee payable was $129 million (7% of the transaction value). However, only 24% of deals where there was termination fee liability for the acquirer did the acquirer increase the original offer. Therefore, the termination fee payable may indicate the confidence of the acquirer that the deal will close rather than an incentive negotiated by the target to leverage an increased offer. No acquirer liable for termination fees increased the initial offer and ultimately failed to complete the deal.