Kill the pill?

Billionaire investor Ron Burkle wants to kill a pill – or at least diffuse it. I’m talking about a poison pill put in place by Barnes & Noble last November limiting an outside shareholder to a 20% stake or else face a watering down of his position by the issuance of cheap stock to other shareholders.

Euphemistically called a shareholder rights plan, poison pills have fallen out of favor in recent years as this hostile takeover defense is in place in only about ½ as many U.S. publically traded companies as ten years ago. (Many investors would like to see any and all offers come a company’s way.) However, the board of Barnes & Noble passed the provision after Burkle announced that he held about 18% of the company through his investment vehicle Yucaipa. Mr. Burkle also raised questions about the propriety of the company acquiring Barnes & Noble College Booksellers from Leonard Riggio, Barnes & Noble’s founder and Chairman.

And why, asks Burkle, does the pill not apply to the Riggio family should they happen to acquire even more shares? (Leonard Riggio and his family currently own about 35% of the company.)

Meanwhile a case between Versata Enterprises and Selecta involving the unprecedented triggering of a poison pill is slowly working its way through the Delaware Chancery Court. (Until Selecta/Versata the poison pill had only served as a nuclear deterrent, but never had exploded.) While poison pills have been blessed by Delaware courts, the Selecta pill (designed to preserve a net operating loss) may have been trumped up using questionable rationale. Burkle could be hoping this case provides an opening that helps defuse the Barnes and Noble bomb.

Disney:Marvel::P&G:Gillette?

Warren Buffett called the acquisition of Gillette by Procter & Gamble a “dream deal” that would “create the greatest consumer products company in the world.” Buffet felt so strongly about the deal that he agreed to acquire additional P&G and Gillette shares so that he would own 3.9% of the combined company upon deal completion. A P&G and Gillette combination seemed to be highly synergistic: the two companies’ products were strong in different regions of the world and focused on different genders. P&G = women ("Tide gets your clothes whiter than white"), while Gillette = men ("The Best a Man Can Get").

Disney's character portfolio, which appeals to pre-teen girls and includes the likes of "Hannah Montana" and "Disney Princess", was infused with a Gillette-like synergy when Disney announced a $4 billion plan to acquire Marvel Entertainment. Marvel has developed marvelously dark characters such as Spiderman, Captain America and X-Men, all of which are just the thing for pre-adolescent boys.

Both P&G and Disney paid "full and fair" price for their acquisitions. But both enjoy real synergy. And just as Gillette had its champion in Mr. Buffett, Marvel's creative legend Stan ("The Man") Lee, creator of many Marvel characters dubs the acquisistion: "a terrific deal that will be extremely beneficial to both companies..." It also helps that John Lasseter, chief creative officer at Pixar/Disney animation, can vouch that the Disney culture under Bob Iger is talent-friendly.

For deal details, see http://www.trivergence.com/market.asp?MarketID=4085

J. Fred Weston & the origin of synergy

Professor J. Fred Weston has died at age 93. Fred was a giant in the field of M&A. He arrived at UCLA from Chicago in 1949 and over his career wrote 32 books and 147 journal articles, many of which dealt with M&A. He mentored many outstanding graduate students, including Nobel laureate Bill Sharpe.

I worked with Fred and had the privilege of taking over as Faculty Director for UCLA Anderson's Executive Program on Mergers & Acquisitions from him in 2005. Fred continued to speak in the program. When I introduced him as the "John Wooden of M&A" (referring to UCLA's legendary basketball coach), it was not an overstatement.

I recall Fred telling the story about how the word synergy came to be used in corporate deal making. The year was 1950, and Fred was at lunch in Westwood with executives from a nascent industry that would later become aerospace. Fred saw a drink menu on the table that promoted Irish Coffee, The Perfect Synergy. (Irish Coffee blends coffee and irish whiskey.)

Not knowing what synergy meant, Fred looked up the term after he returned to his office at UCLA and saw synergy = the interaction of two or more agents so that their combined effect is greater than the sum of their individual effects. "Now that's what an M&A is supposed to do," thought Fred. He started using synergy in his writings to characterize successful deals, and the term became a cornerstone of academic and professional thinking.

Fred, I miss the synergy we shared, and I know many others do also.

Changing Japan's M&A culture over a beer?

Strapping two leaky canoes together will not improve buoyancy. And merging two weak companies rarely strengthens the combined entity. M&A is no super glue for struggling enterprises.

Successful M&A activity is a thoughtful, strategic build on a company's core competency.

Nevertheless, Japan's business culture has traditionally assumed that mergers are for the weak and are an admission of failure. As The Economist (July 18, 2009) says about Japanese corporate marriages: "Most deals involve firms in distress."

So the announcement that Kirin and Suntory (both successful Japanese brewers) are discussing a $41 billion merger might signal that a new generation of corporate development thinking is arising within the country.

Indeed many Japanese middle-market firms across all industries were begun after WW II and are led by aging founders. Many of these companies have focused on a contracting local market and do not have scale and capital to compete globally.

Could Japan's M&A attitude be changed over a couple of beers?

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February 8, 2010 -- Update...

The Kirin and Suntory merger talks fail to come to fruition. The collapse is viewed as a setback for strategic consolidation and efficiency in Japan.

e-book deals heat up

M&A activity may have cooled off overall, but remains hot in select sectors. Take e-books, for example.

This month, Prime View International signed a definitive agreement to acquire E Ink Corporation for $215 million in cash. Prime View has been E Ink's largest customer and uses E Ink technology in making the Amazon Kindle and Sony Reader. Prime View is now in control of more pieces of the e-reader solution stack.

In March, Barnes & Noble acquired Fictionwise, a publisher and distributor of e-books using various PCs and handheld device formats. The purchase price was $15.7 million in cash. The deals helps position Barnes & Noble in the e-book market as it competes with Amazon.com as a distributor of digital content. Fictionwise also has a content-provider relationship with Plastic Logic, which has announced its own plans to release an e-reader later in 2009.

http://www.trivergence.com/market.asp?MarketID=4074

Apple's one acquisition

Apple's only acquisition made over the past year or so has been to buy P.A. Semi, Inc. for $278 million in cash. P.A. Semi is a fabless semiconductor company that develops processors for the high-performance embedded-computing markets.

So when Apple does buy, it's time to pay attention.

The company's low-power chips might be utilized in the ongoing development of the iPhone and iPod product lines. In addition to developing chips to reduce the power consumption of its iPhone and iPod touch products, Apple might well build graphics circuitry to enable its devices play more realistic games and high-definition videos.

Notorious for its secrecy, Apple move into semiconductors also reflects its desire to keep its technology plans closer to its chest. Apple management has expressed concern that outside chip partners might be too generous in sharing information that Apple considers proprietary.

http://www.trivergence.com/market.asp?MarketID=4057

Light side or dark side?

Oracle Corp. signs a definitive agreement to acquire Sun Microsystems Inc. for $7.1 billion in cash or $9.50 per share. Sun’s core software offerings (including its Java programming language and MySQL database) are closely linked to the open source community. A key question is the extent to which Ellison would actively support these offerings. (Popular websites such as Facebook utilize MySQL.) Will Oracle build on Sun's software popularity with young programmers or will the software be undermined to protect Oracle’s current products/business model?

Will Oracle's purchase be on the light or dark side of M&A? http://www.trivergence.com/market.asp?MarketID=4071