The Bar for Aggression in M&A Just Got Raised

(Bloomberg Opinion) -- There are hostile takeovers, and then there is Covea Group’s failed attempt to buy French rival Scor SE, which has just ended in bitter recriminations. Who knew deals in the sleepy insurance industry could be so ugly?

On Tuesday, Covea said a deal with Scor was no longer part of its “strategic options,” blaming the target’s refusal to talk, along with “continued attacks and hostile tactics.” Scor’s response was rapid and vigorous: A detailed statement strongly denying the accusation and announcing legal proceedings against Covea, chairman and chief executive officer Thierry Derez, as well as its advisers, Barclays and Rothschild.

Scor seems to have been well prepared for Covea’s withdrawal. Then another bombshell dropped. Scor said Credit Suisse Group AG, which had been advising and financing Covea, had told it back in November that it had dropped its support for the attempted bid. The market had not been aware of that. Whether or not this should have been disclosed under stock market rules, it is certainly information that investors would have found useful to know.

It’s a sad outcome for Scor shareholders hoping for a tie-up. The shares fell as much as 15 percent and settled at around 36 euros, a whisker above their level before Covea’s interest in a deal emerged back in September. A deal had sound industrial logic and could plausibly have worked for both sides at the right price. The combined companies would have enjoyed a more varied mix of customers. Scor has been an adept acquirer itself, but its strategy looks constrained by its market value of just 7 billion euros ($8 billion).

Covea is well-capitalized and could have afforded a transaction. But it has come across, at best, as looking inexperienced in the public markets. It has a stake in Scor and Derez had a board seat. The insurer made its initial approach in mid-August, just before Scor’s capital markets day. When the proposal was rejected, Covea went public with the plan in early September in an attempt to pressure Scor chairman Denis Kessler into talks.

Derez’s presence on the Scor board exposed him to attack for potential conflicts of interest. Scor now accuses Derez of using confidential information in preparation of the takeover plan. He didn’t step down until November. (Covea has yet to respond to the allegations.)

Covea’s initial offer wasn't high enough and Scor was right to reject it. But shareholders could be forgiven for hoping that the situation would have progressed to an increased proposal, talks and a friendly agreement or a tie-up with a rival bidder. Covea’s handling of the episode raises questions about how serious it was in the first place. Arguably, a determined bidder might have gone in higher, or dangled a raised price sooner.

Kessler has maintained Scor’s independence and avoided it being taken over at a bad price. But given how this situation has ended, the risk now is that it will be a long time before Scor gets another approach from anyone else.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

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