One sign of a robust mergers-and-acquisitions environment: “topping bids.”
Competitive bids for companies generally must be considered by a board, even if directors are enamored of an initial suitor. Once the bidding begins, that’s a cue for lawyers to commence lawyering.
“Topping bids clearly generate more business for M&A lawyers,” said Andor Terner, a partner in the Newport Beach office of Los Angeles-based O’Melveny & Myers LLP. “They add complexity to the existing deal that is being topped and add at least one more set of M&A lawyers to the deal.”
And with complexity comes cost—and billable hours.
“The transactions where there are third-party bids being arranged are the most attractive premium work that lawyers do,” said Cary Hyden, a partner and co-chair of the corporate department in the Orange County office of Los Angeles-based Latham & Watkins LLP. “In those situations, clients have to hire experts with experience and have to be willing to pay. That’s typically at the premium rates. Those ingredients are helpful to the success of the law firms.”
Attorneys on the sidelines say the current courting of Irvine-based Ista Pharmaceu-ticals Inc. by Valeant Pharmaceuticals International Inc. of Mississauga, Ontar-io, could draw offers from additional companies. Valeant recently topped its own initial bid of $6.50 per share by offering $7.50 a share, and the company said it could sweeten the offer further.
The new offer values Ista at $360 million. Shares of the eye drug maker were trading at a market value of about $342 million.
O’Melveny’s Terner said that other companies out there could now be looking at Ista differently.
“It’s an OC company,” Terner said. “We’re keeping our eye on it.”
Local attorneys say they have noted a trend toward more frequent topping-bid situations.
“In years past, once you had an announced transaction, you seldom were concerned with these topping bids,” said Steven Tonsfeldt, a partner and chair of the mergers and acquisitions practice at O’Melveny. “They were fairly unusual then, whereas now—certainly in the last year—OC has seen a number of them.”
The sale of Newport Beach-based semiconductor supplier Conexant Systems Inc. last year involved such an offer and a cancellation of a previous agreement.
Conexant had signed a merger agreement in January to be acquired by Hauppauge, N.Y.-based Standard Microsystems Corp. for about $2.25 per share.
“That was the traditional structure,” Terner said. “Bankers talked, management teams talked, lawyers got involved. A deal was negotiated.”
The boards of both companies had approved the deal. The more attractive offer came in February from San Francisco-based private equity firm Gold Holdings Inc., an affiliate of Golden Gate Capital, which offered to pay Conexant $2.40 per share.
Conexant left Standard Microsystems at the altar, paying $7.7 million in termination fees.
“There’s nothing that will get the attention of other companies better than seeing that another company in the sector is considering selling,” Latham’s Hyden said.
That buy instinct drove Aliso Viejo-based Mirosemi Corp. to put in a superior bid and win an acquisition deal last year.
Syracuse, N.Y.-based Anaren Inc. had announced a plan to buy Camarillo-based AML Communications Inc. at a $2.15-per-share price in February.
Microsemi walked in, offering $2.50 per share, for a total of $28.3 million.
AML terminated the original agreement and paid $800,000 to Anaren in April, and the deal wrapped up in May.
“A topping bid doesn’t necessarily have to be hostile,” O’Melveny’s Terner said. “We’re probably going see more of it in the next couple of years under the presumption that many public companies are undervalued. Topping bids can also generate litigation, as well as matching bids and potentially new topping bids.”
