Credit crunch means it's a new M&A ballgame

There's a revival under way in billion-dollar takeover offers, and the latest batch of deals shows how this year's credit crunch changed the landscape for mergers and acquisitions.

Six proposals announced yesterday exceeded the $1 billion mark - matching the highest total for a single day since July, according to data compiled by Bloomberg. Sonepar SA's bid for Hagemeyer NV, the world's third-largest supplier of electrical equipment, led the pack at the equivalent of $3.5 billion.

Buyout firms, which pulled back from dealmaking in the third quarter after losing access to relatively cheap and easy financing, were among the bidders. Kohlberg Kravis Roberts & Co agreed to pay the equivalent of $1.3 billion for Turkey's UN Ro-Ro Isletmeleri AS, a shipping company.

While the Ro-Ro buyout will be the biggest ever in Turkey, the price is a relative pittance for KKR. The New York-based firm and TPG Inc are preparing to pay $32 billion for TXU Corp, a Texas power producer, in the United States' largest buyout.

Smaller targets have become the norm for buyout firms as well as other suitors. Since July 25, only one takeover bid for more than $10 billion has been made, Bloomberg's data shows. OMV AG, central Europe's biggest oil company, offered the equivalent of $15.7 billion for Hungary's Mol Nyrt on September 25.

The monthly figures plunged by more than half from the $424.4 billion average for January through July, when buyout firms set and then broke records for the biggest deals ever. April was the peak month, with $544.7 billion of offers.

As the pace of mergers and acquisitions has slowed, the would-be buyers of US companies have become more likely to offer shares rather than cash, Bloomberg's data shows.

One of every six offers this month calls for payment only in stock. There hasn't been a higher percentage for a full month since September 2005. Conversely, all-cash bids are less than 70 percent of the total, a threshold last crossed two years ago.

Because buyout firms only pay cash, the shift shows their restraint in the wake of the credit crunch - the catalyst for those other changes in the M&A market.

David Wilson is a Bloomberg News columnist. The opinions expressed are his own.

(China Daily 10/11/2007 page16)