Foreign hostile bids threaten domestic economic status quo

The fashion of mergers and acquisitions (M&A) has come to Greece earlier than expected this year but this time it may have different protagonists. The foreign investors, that is, firms, private equity funds and institutional portfolios, threaten to undermine the status quo by importing methods, such as hostile bids, which are common outside Greece but have been considered close to unacceptable here. Of course, this is not the first time that foreign investors have made their presence felt in the Greek market. The successful tender offer by France’s Credit Agricole (CA) for Emporiki Bank last year is such an example. CA ended up controlling more than 70 percent of Emporiki following the tender. But, the French bank had set foot in Emporiki in 2000 and its bid was widely considered to be favored by the Greek government, Emporiki’s main shareholder at the time. So it did not have the characteristics of a hostile bid, although a number of Greek banks were not really happy with it. Other well-advertised deals involving foreign companies in 2006, such as Russian Sistema’s acquiring control of Intracom Telecoms and internet provider Hellas On-Line (HOL) were also considered friendly in the sense that their main shareholders consented to the takeovers. However, none of them has caused as much of a stir as the decision by the Marfin Popular Bank Group last week. Two parameters made them unusual by Greek market standards. First, the decision of the board of Marfin Financial Group (MFG) to proceed with a 5-billion-euro share capital increase, the largest ever in Greece, with the explicit goal of using it to acquire firms in different sectors in the country and the wider geographical region. It should be noted that Cyprus-based Marfin Popular Bank (MPB) owns 95 percent of MFG at present. Of course, this share capital increase would have never been announced if the management of MFG was not confident it would be successful. As somebody put it: «You either have secured the funds or you have not and commit suicide.» The fact is that MFG, to be renamed Marfin Investment Group (MIG), can borrow more money, using the equity, to acquire target companies. Leveraging up its balance sheet a couple of times would not have been unusual, as companies abroad do it even up to eight times or more. However, if MIG borrowed indeed twice its equity base, it would have had a firing power of some 15 billion euros. With this kind of money, it could go after a number of companies which are leaders in their sectors, sparking an M&A frenzy Greece would not have seen before. In addition to the health sector, where MFG, or MIG, has already made its intentions clear by buying a majority stake in the Hygeia Hospital and indirectly in the Mitera maternity clinic, MIG is likely to seek targets in other sectors such as real estate and tourism. It may also play a role in the MPB group’s expansion strategy in the banking sector. The second parameter which caught everybody by surprise was MPB’s decision to launch a tender offer for both Piraeus Bank and Cyprus Bank and Piraeus Bank’s decision to do the same for MPB. Given the fact that no proposal had been agreed upon by the target’s management, we are talking about hostile bids, which have been unusual in Greece, especially in the high-profile banking sector. Despite the fact that the major shareholder of MPB is cash-rich Dubai Investment Group, it is widely believed no such tender offers would have been submitted without the knowledge and prior approval of the Arab investors although the brain behind all these moves is widely thought to be Andreas Vgenopoulos, MPB’s CEO. This brings to the fore the increasing importance of foreign companies and funds in the Greek corporate landscape and the Athens Stock Exchange. Undoubtedly, no such hostile bids would have been submitted had there not been excess liquidity abroad and conditions in the the stock and credit markets were not favorable. But both liquidity and markets appear to be supportive of M&A activity so far and of foreign raiders equipped with plenty of cash and expertise in financial engineering. The leveraged buyout of TIM Hellas and Q-Telecom by Apax Partners and the Texas Pacific Group was a vivid example of new foreign players coming into the Greek market. The fact that Greeks, working for both private equity funds, were behind the deals does not negate them. The same is true of the buyout of Hyatt by BC Partners, another private equity fund. This deal has not been completed yet due to differences in the Greek laws but still it is a demonstration of the growing importance of foreign players in M&A, the Greek market and the economy. Of course, there are a few different cases, potentially involving foreign companies. The Greek state’s pursuit of a West European telecoms incumbent to become OTE’s strategic partner is such an example. Nevertheless, the trend is clear. Foreign investors, both corporate and private equity funds, are more willing to set foot in the Greek market even if it means employing hostile bids and other methods unwelcome to the vast majority of the country’s traditional economic elite. However, these corporate moves in the era of globalization are not unusual, although their primary victims are sometimes the local corporate barons who lose control of their companies. This should pick up more steam as long as liquidity is ample, the stock and credit markets are in good shape and there are attractive local corporate targets. With foreign institutional portfolios continuing to increase their share of the capitalization of the Athens bourse, above 46 percent, at the end of 2006, the task of foreign corporate raiders will become easier unless market conditions deteriorate markedly and/or Greek firms become more aggressive in their acquisition attacks and more sophisticated in their defenses.

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