Business View | Jason Nissé

Let battle commence: the hostile bid will be back in fashion for 2002
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The Independent Online

This year ends with something that has been largely missing from the rest of the 12 months – a good old bid battle. Carnival, the American cruise operator, has made a £3.2bn offer for its British rival, P&O Princess, which was planning to merge with the third major player in the game, Royal Caribbean.

The ins and outs of the deal are complex and do not reflect well on some of the participants – notably P&O and its advisers, who have used a technicality to avoid the constraints of the Takeover Code. However, they would argue that, had they not done so, they wouldn't have brought Royal Caribbean to the negotiating table.

The US regulators will have to decide if either of the proposed deals goes ahead, and I suspect they might be quite understanding, given the difficulties in the leisure sector post 11 September. In which case, P&O would do well to tell its lawyers to sling their hook, and reduce the poison pill – sorry, deal protection – elements in its Royal Caribbean deal to within Takeover Panel guidelines. If it does not, it will find that it might win the bid battle but lose the war, as unhappy investors start selling out.

With this in mind, I will make my first prediction for 2002. Carnival will increase its offer for P&O – and win.

The success of a hostile offer could well prove a spur to others who might be tempted to enforce what an investment banker once described as "involuntary consolidation". Hostile bids have been largely out of favour due to the difficulty of completing the deals and the risks associated with making a bid based only on those documents publicly available (a sad indictment on the quality of auditing, methinks).

Recent hostile offers have had curious results. Blue Circle fended off the bid from Lafarge, but then accepted an almost identical offer a few months later. WPP made a hostile bid to stop Tempus being bought by Havas, then after 11 September tried to get out of the offer, but was forced to buy it anyway. Vinci bid for TBI which, at first, rejected the offer but then changed its mind, but so did Vinci, so the bid was withdrawn. And Pubmaster agreed to buy Wolverhampton & Dudley only for Wolves to change its mind and successfully fend off Pubmaster.

Despite this potholed track record, I believe that 2002 will be the year of the hostile bid. There are quite a few companies with depressed share prices, and even more depressed shareholders, that would be ripe for an offer. In addition money is cheap. There has never been a better time to issue decent quality corporate bonds and if you are paying only 5 per cent interest rates on your money, many more purchases appear attractive.

Targets may resist because of their low ratings, but investors may overrule them for exactly the same reason.

But in which sectors will this phenomenon re-emerge? To answer that, I say: "Follow the money". Where has there been the greatest decline in share prices? Could this be where there is the greatest value?

Take Carlton. I find it hard to fathom how a group could see its share price fall from over 900p to only 133p in under a year (though it has rallied to around 250p). Sure advertising has fallen off a cliff. Sure it is throwing good money after bad at ITV Digital. But the fundamental long-term story has not altered that much.

And this scenario is replayed across the TMT zone. Larry Ellison, the Oracle boss, recently said that the technology sector was becoming "mature", in that growth was less exciting but more predictable, and consolidation would be a driving force – as is evidenced by the proposed Compaq/Hewlett-Packard deal. In the past, bidders have shied away from hostile offers in the TMT area because these are people businesses, and if the assets are unhappy, they leave. But, as Granada showed with LWT, you can make a hostile bid in this sector and make it work.

So here is my nap for 2002. The carnival may be in the cruising sector, but the fireworks will be in TMT.

j.nisse@independent.co.uk

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