Look for Increase in Hostile Takeovers
Padgett, Tania, American Banker
Virtually all mergers and acquisitions in the banking industry have been done on friendly terms, but hints are growing that hostile takeovers could be less rare in the future.
So far most deals have been predicated on economic benefits to acquirers and targets alike, says J. Christopher Flowers, a partner at Goldman, Sachs & Co., New York.
But as these "make sense" deals dwindle, he says, hostile bids are almost certainly going to increase.
The most recent unfriendly move in banking was Wells Fargo & Co.'s pursuit of First Interstate Bancorp. The San Francisco and Los Angeles banks merged earlier this year
Such full-scale hostile takeover efforts will most likely continue to be rare, Mr. Flowers says, "but semi-hostile activity (by) dissident shareholders has increased."
Compared to most other industries, hostile activity in banking is still marginal, of course, but there are increasing signs of an industry bracing itself for less friendly mergers.
In one of the most interesting developments, Aon Risk Services, a subsidiary of Aon Corp., the Chicago-based international insurer, this month began marketing hostile-takeover and proxy-battle insurance to financial institutions.
The insurance, which Aon vice president Patrick Tatro says is the first of its kind, covers attorney fees and other costs incurred as a result of hostile activity. A policy can be purchased for a minimum of $22,500 annually, which cover costs up to $1 million.
"It compliments the poison pill," says Mr. Tatro, referring to a widely used takeover defense. "The idea is that the board has a war chest to explore all alternatives without considering the balance sheet."
No bank has purchased hostile-takeover insurance thus far. Mr. Tatro said he expects to target smaller banking companies, which have seen an upswing in proxy fights.
Indeed, the banking industry has had the highest occurrence of proxy fights among all types of companies in 1995 and 1996, according to Institutional Shareholder Services.
Consolidation and the prospects for takeovers at attractive premium prices have given rise to more dissident shareholders particularly in smaller institutions, says Peter Gleason, senior analyst at the Bethesda, Md. …