The CEOs of Philip Morris and Rio Tinto are attempting takeovers that are central to their strategies. They may eventually get what they want, but only after investors have called their bluff, write aimeedonnellan and gfhay
Perhaps unsurprisingly, pushy hedge funds have noticed. Stausholm needs a simple majority of non-Rio Turquoise Hill investors to support his $3 billion buyout. But dissenters Pentwater Capital Management and SailingStone Capital have a third of the shares not owned by Rio. Olczak, who needs 90% of shareholders to accept in order to automatically de-list the company, initially faced opposition to his $16 billion offer.
The end is in sight, but it’s looking messy. On Monday, PMI said it would go ahead with the deal despite only securing. That means Olczak’s smoke-free strategy is still intact. But he’ll either have to hope that the remaining investors tender their shares at the last minute, or mop them up slowly over time.
If there’s a lesson, it’s that raising an offer even once proves that hedge funds have the whip hand, encouraging them to hold out for more. Trying to get a low price can therefore be counterproductive, since it attracts hedgies’ attention. Of course, launching a knockout bid straight away would risk overpaying. But as Olczak and Stausholm are finding out, the alternative is no better. It’s hard to wear a convincing poker face when everyone knows you need a deal.
PMI said it believed Swedish Match’s 10 largest shareholders had accepted its bid. It will extend its offer to buy shares until Nov. 25 in the hope of further raising its stake.
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