The guardians of once-mighty Fortress Europe are increasingly finding that the barbarians at the gate are European themselves. Merger-and-acquisition activity on the Continent has been hot for years, fueled by the privatizations and corporate restructuring. What's new is that European companies are more likely than ever before to engage in American-style hostile takeovers.
Once frowned upon as impolite in a corporate culture obsessed with maintaining harmony with politicians and unions, hostile and unsolicited takeover bids are on the rise. "If it doesn't work out friendly, management is more likely to go directly to the shareholder. That's the change today," says Alexander Dibelius, the head of Goldman Sachs (GS) Germany.
Europe's corporate predators are hunting ever-bigger game. From the beginning of this year through Apr. 16, European companies launched 13 hostile and unsolicited takeover bids worth 157 billion euros ($193 billion), according to Thomson Financial. That compares to 22 deals worth nearly 61 billion euros ($75 billion) in all of 2005.
This is taking place against a backdrop of rising M&A activity. European dealmaking hit a record in 2000, with 19,139 transactions worth 1.6 trillion euros ($2 trillion) in 2000. It then dipped until hitting bottom in 2003, when there were 11,815 deals worth 545 billion euros ($671 billion). The number and value of deals involving European companies have been climbing back since then, last year totaling 12,433 deals worth 977 billion euros ($1.3 trillion), according to Thomson Financial.
MBA BRIGADE. There are many factors driving the rise in hostile and unsolicited bids. Since the privatizations of the 1980s and 1990s, the state sector has been on the decline, and the sheer number of listed public companies has increased. At the same time, the Continent's age-old resistance to the Anglo-Saxon brand of capitalism is waning at many companies, particularly at senior levels. That's because a younger generation of executives that has either worked in the U.S. or hold MBAs from American universities has taken the helm at many European companies.
These young lions -- including Klaus Kleinfeld, CEO of Germany's Siemens (SI), who spent years working in the U.S, and Wolfgang Reitzle, an ex-Ford Motor (F) executive who now heads German engineering group Linde (LNGF) -- have made their companies leaner and meaner and have accumulated big war chests. And they're quick to pounce when they spot an attractive acquisition target.
Globalization is another factor driving the surge in hostile takeovers. Today, competitive threats aren't only coming from Europe and the U.S. Witness the impressive rise of Mittal Steel (MT), the world's biggest steel company, which is waging a takeover battle for Luxembourg-based rival Arcelor. Mittal founder, Indian-born Lakshmi Mittal, spent years snapping up and retooling aging steel mills in places like Kazahkstan and Poland before negotiating the $4.5 billion purchase of International Steel Group from American investor Wilbur Ross in 2004 -- a deal which vaulted Mittal to the top of the industry.
BRUTAL NEW REALITY.Now the billionaire steel baron is setting his sights on Europe. His 18.6 billion euro ($22.9 billion) bid for Arcelor sends the following message to European CEOs: Future threats will come increasingly from emerging economies. "Many of these executives with international experience are observing that there's increasing competition from the emerging economies and managers who are skilled in market technologies, including hostile takeovers," says Norbert Walter, chief economist at Deutsche Bank (DB). "If you want to stay in the driver's seat, there's sometimes no alternative to a hostile takeover."
While Europe's corporate brass is coming to terms with this sometime-brutal new reality, hostile takeovers are still running into resistance from trade unions and politicians. The largest deal announced in Europe so far this year was German energy group E.on's (EON) bid for Spanish utility Endesa (ELE), valued at 47.5 billion euros ($58.8 billion). But the Spanish government is trying to block the deal, since it interferes with Madrid's efforts to broker a merger between Endesa and another Spanish energy group, Gas Natural (GASNF).
SAYING NO TO NATIONALISM. Similarly, Poland, a new member of the European Union, tried to block Italy's UniCredit (UNCGFF) from merging HVB's Polish bank with local bank Pekao. The conservative Polish government feared the deal would lead to job cuts. Meanwhile, politicians in Paris scuttled plans by Italian energy group Enel to launch a takeover of France's Suez (SZE) by arranging a shotgun wedding with French rival Gaz de France, sparking ire around Europe.
The European Commission is keen to nip this resurgent economic nationalism in the bud. European Competition Commissioner Neelie Kroes has been publicly critical of attempts by governments to engineer the creation of so-called national champions. The overall rise in European M&A activity is a sign "that the internal market has been achieved," European Economic & Monetary Affairs Commissioner Joaquin Almunia said last month. But he readily acknowledged that "there still are some barriers...some protectionist attitudes."
For years, Almunia and the rest of the bureaucrats in Brussels have been intoning the little ditty popularized by children's TV star Barney: "I love you, you love me, we're a happy family." But it looks like the politicos in Paris, Warsaw, and Madrid are singing a different tune.