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Dollars & Sense

Published
  • March 01 2005, 1:00am EST

Fueled by significant merger and acquisition activity in the fourth quarter of 2004, Wall Street is predicting a merger boom in 2005. Just a few recent transactions included Oracle's $10.3 billion offer for PeopleSoft, IBM selling its personal computer business to Lenovo of China for $1.75 billion, Symantec's acquisition of Veritas for $13.5 billion and Sprint's purchase of Nextel Communications for $35 billion. There are bound to be more to come, with a return to confidence in the economy and significant competitiveness in various industries. How do you know whether your company is on the block, intended to become a merger or acquisition candidate? There are several clues, if you pay attention to them. Here are my top ten ways, in true David Letterman style, to determine if your company is destined to be yet another merger or acquisition candidate.

10. At the annual stockholders meeting, the chairman of your company's Board of Directors just nods when the perennial dissident shareholder voices his/her complaints. Every public company has one - a stockholder who can be counted on to complain about everything the company does (or doesn't do) at its stockholders meeting. Usually the complaints elicit responses that range from denial to outrage; when the response is noncommittal, watch out! It could signify the Board has other things to think about (such as a merger).

9. Your company has a unique product in the industry that is protected by a patent and could strengthen a competitor's product line. If your company has something that other companies covet, it could be an indicator that an acquisition is imminent. (Note: This only works while your product is "in vogue" and in great demand. If new technology or other innovation renders your company's product obsolete, opportunities for merger or acquisition disappear.)

8. Your company has been unprofitable for three years running, even though revenues have increased every year. Sound familiar? It's the story told by IBM's personal computer business. When a company sells more and more product, but can't make a profit, it may signal the fact that the market has become commoditized. In this case, Dell has figured out a model for obtaining PC parts and subcomponents at prices such that IBM couldn't compete.

7. At the company's annual picnic, the president's executive assistant blurts out, "Why do you think Company X's CEO keeps calling my boss all the time?" It could be friendly banter between competitors, or it could signify that a deal is in the works.

6. A bunch of suits show up and start asking questions about your company's policies and procedures. Another clue may be that the local Hampton Inns and Courtyards by Marriott are full. Prior to any deal, the acquirer will do due diligence on the acquiree. The company doing the acquiring needs to know what it is buying, and thus will examine the books and policies of the target company. Watch for the signs!

5. Things get too quiet. If no one in upper management talks out loud, and no information is forthcoming concerning the company's future, you may have a reason for concern.

4. Your company's stock price doubles overnight. On second thought, if this happens, it may already be too late. The deal may already be complete.

3. An industry competitor's CEO makes public comments about "wanting to own it all." This may bode badly for your company's retention of its independent status. Not all of these comments are backed up by action, but beware the ones that are!

2. Your company's Board of Directors dismantles its poison pill defense against takeovers. A poison pill makes it prohibitive, if not impossible, for an acquirer to come in and purchase another company without significant negative financial consequences. Many companies have adopted poison pills because they think remaining independent will be in the company's best interests. A change in thinking could mean that an acquisition is imminent.

1. And the number one clue that your company may become an acquisition candidate: Your company's Board of Directors fires the CEO. The firing of the CEO could have other meanings, but consider PeopleSoft's Craig Conway, who continually opposed his company's acquisition by Oracle. The only way PeopleSoft's board could change the status quo was to fire the CEO.

Get ready for merger mania. Mergers and acquisitions will undoubtedly increase as various industries rationalize their participants in an improving economy and an increasingly competitive environment. Want to determine whether your company is about to be acquired? Look for the signs!     

 

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