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Activist Spotlight: Companies May Regret Rejecting Pre-Covid Deals

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Published: May 4th, 2020
Those companies that rebuffed suitors offering premiums in the 10th straight year of market expansion may find themselves easy pickings when activist campaigns return in full force.

Many activist investors have taken their foot off the gas pedal during the Covid-19 crisis. But when markets stabilize, companies can bet they’ll be back en masse, and one group may find itself to be low-hanging fruit: boardrooms of companies that overthought or rejected takeover offers in mid- to late 2019.

Last week, convenience store and gas station operator Alimentation Couche-Tard Inc. walked away from an A$8.8 billion ($5.6 billion) takeover offer for Caltex Australia Ltd.

Under the premise it was undergoing a restructuring that would turn the company around, Caltex rejected two bids from Alimenation Couche-Tard before a third offer finally brought the target to the table. Couche-Tard promised to return when markets recovered, but it’s unclear if it will return to the same Caltex Australia.

Car paint maker Axalta Coating Systems Ltd. (AXTA) launched a strategic review in June, possibly under the influence of some activist investors. In July, Japan’s Kansai Paint Co. Ltd. and Pittsburgh’s PPG Industries Inc. (PPG) were said to be taking a look. In September, it was reported the company had five bidders in late rounds and would likely announce a deal before the year was out. Bids were thought to be around the mid-to-high $30s.

On March 31, however, Axalta canceled the nine-month review without a deal. The chemicals company blamed “the dislocation in global markets caused by the coronavirus pandemic.”

It was the first time Axalta was dealing with the coronavirus but the second time in less than 18 months that the company failed to come to terms with potential buyers, with another Japanese suitor, Nippon Paint Holdings Co. Ltd., walking away from a potential $9.1 billion deal in December 2017.

Axalta’s shares closed trading on Thursday, April 23, at $18.25, giving it a market capitalization of less than $4.3 billion.

Private investment firm Vintage Capital Group LLC offered $40 a share, or about $519 million, for casual dining restaurant chain operator Red Robin Gourmet Burgers Inc. (RRGB) in June 2019 and even tried to force the company’s hand through a proxy fight.

On Thursday, Red Robin’s shares closed at $12.07, giving it a market cap of about $155 million, a 70% depreciation from Vintage’s offer.

And industrial products maker Circor International Inc. (CIR) in July rejected an improved $48-per-share takeover from competitor Crane Co. (CR), despite pleas to consider the deal from Mario Gabelli and an offer from the billionaire investor to tender his firm Gamco Investors Inc.’s 14.88% stake in Circor toward the deal. Circor’s stock closed at $11.46 a share Thursday.

As evidenced above, hostile takeover approaches rarely work out. But as reality sets in that the economy is now in recession — one so traumatic and shrouded in uncertainty that it is garnering comparison to the Great Depression — the question becomes, should these targets and others have been more friendly to approaches?

Editor’s note: The original version of this article, including advisers and other details, was published earlier on The Deal’s premium subscription website. For access, log in to TheDeal.com or use the form below to request a free trial.

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