Zuckerberg to Buffett show wealthy owners dominating big M&A

The megarich are dominating U.S. megadeals.

Mar 28, 2014 @ 9:09 am

Mark Zuckerberg
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Mark Zuckerberg ((Photo: Bloomberg News))

The megarich are dominating U.S. megadeals.

Seven of the 15 U.S. takeover bids worth more than $10 billion since January 2013 were initiated by firms founded and controlled by one of the 200 wealthiest men in the world, according to data compiled by Bloomberg. Last month Facebook Inc.'s Mark Zuckerberg, who has a net worth of $27.1 billion, made a $19 billion offer for messaging service WhatsApp Inc., and this week agreed to buy virtual reality firm Oculus VR Inc. for at least $2 billion.

Controlling shareholders aren't subject to the same pressures that in recent years have inhibited corporate boards from pulling the trigger on major transactions, said Frank Aquila, a partner at Sullivan & Cromwell LLP. U.S. companies have done 48% fewer large deals compared with 2007, according to data compiled by Bloomberg.

“Even as the economy has strengthened, boards and management have been risk averse,” Mr. Aquila said. “The companies that have been willing to take greater risks are those that have a controlling or significant shareholder.”

In some cases stockholders don't look kindly on those risks. SoftBank Corp.'s stock tumbled 17% on Oct. 12, 2012 ,after the company, controlled by billionaire Masayoshi Son, confirmed that it was in talks with Sprint Corp.

Controlling CEOs tend to ignore such short-term moves, in part because they are less worried about losing their jobs, said Paul Parker, Barclays PLC's global head of mergers and acquisitions. The freedom allows them to look for opportunities that may take years to produce results, unlike companies controlled by a diversified base of shareholders, he said.

When Michael Dell, worth about $15.4 billion according to the Bloomberg Billionaires Index, took his computer-maker company private last year with Silver Lake Management LLC, he said the strategic changes he wanted would take too long to sit well with public shareholders. Mr. Dell owned about 16% of the stock.

“Large individual shareholders typically take a meaningfully longer-term perspective, especially if they can buy against a market that is moving in the opposite direction,” Mr. Parker said.

They're also more willing to take bigger bets because their nest eggs are so large.

Dell's leveraged buyout was challenged by Icahn Enterprises LP, founded by Carl Icahn, the world's 33rd wealthiest man with a net worth of $21.9 billion. Mr. Icahn owns 88% of Icahn Enterprises's outstanding shares.

Last year, the world's fourth-richest richest man, Warren Buffett, teamed with 3G Capital to buy HJ Heinz Co. for about $27.4 billion including debt. Mr. Buffett, with a net worth of $63 billion, controls about a third of the shareholder voting power for his Berkshire Hathaway Inc.

CABLE WARS

Wealthy founders have been especially active deal makers in the telecommunications industry, often dueling each other. Last month Brian Roberts and John Malone jockeyed to acquire Time Warner Cable Inc.

Mr. Roberts, with a net worth of about $500 million, controls Comcast Corp. with a 33% voting stake. Malone controls Liberty Media Corp, which is Charter Communications Inc.'s largest shareholder. Malone is the world's 199th wealthiest man with a net worth of $6.7 billion.

Mr. Roberts won the battle as Comcast agreed to acquire Time Warner Cable for $45.2 billion in stock, trumping a bid from Mr. Malone in a surprise offer. Comcast shares have risen 3.5% since the takeover bid was made public in November.

“It's easier to progress deals internally when your founder gets behind it, so they may not bog down as frequently,” said Marco Sguazzin, principal at Deloitte Consulting LLP who consults on M&A in the technology, media and telecommunications industries.

Another billionaire bash occurred last year when Dish Network Corp. challenged SoftBank for Sprint. Dish co-founder Charlie Ergen, who controls about 90% of the voting rights for the second-largest U.S. satellite-TV provider, has a net worth of $17.6 billion, ranking him as the world's 42nd wealthiest person.

Masayoshi Son owns more than 19% of SoftBank and has a net worth of $17 billion, at No. 47. SoftBank won, paying $21.6 billion for 70% of Sprint.

'STRONG PERSONALITY

Mr. Ergen is sniffing around another possible multibillion-dollar deal, having contacted DirecTV CEO Mike White to discuss a merger of the two satellite-television companies, people with knowledge of the matter said March 26. Dish and DirecTV have a combined market value of about $68 billion.

“A strong personality is more likely to get something done,” Jeffrey Rosen, a partner at law firm Debevoise & Plimpton, said yesterday in an interview at a conference of M&A experts held by Tulane University Law School. “Many of these guys have a high degree of self-confidence.”

CEOs of companies without controlling shareholders remain hesitant to borrow billions to do a big deal amid uncertainty about whether the Fed will increase interest rates, Mr. Aquila said. Still, now that the Fed is cutting the $85 billion it had been pumping into the U.S. economy, and the European debt crisis has subsided, large-deal flow may improve in 2014, he said.

Making multibillion-dollar offers for companies isn't necessarily something investors should be cheering, said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. If only founders cushioned by dual-class share structures are making big bets, it's possible some of those risks aren't worth taking, he said.

Facebook's stock, for instance, has declined 10% since the company announced it was buying WhatsApp. “No one is infallible, and there are a lot of very smart CEOs out there,” Mr. Elson said. “Simply because the founder made a good bet at one point doesn't mean he'll always make a good bet. Everyone should be accountable to someone.”

(Bloomberg News)

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