Winners & Losers 2010: The big unions

From ticket purveyors to chocolate makers to drug manufacturers, a series of mergers redefined the business landscape.

See also, ‘ The messy mergers‘ for a review of 2010’s top takeovers at home and abroad.

&#9650 Continental + United

In a stock swap deal worth US$3.2 billion, United Airlines merged with former rival Continental, bumping Delta out of the top spot as the world’s largest air carrier. United also cemented a new deal with Air Canada, bolstering the transborder networks of both airlines. But passengers already tired of shoe removal and body scanners may not find United’s expanded skies so friendly. Airline mergers tend to lead to an overall reduction in available seating throughout the industry, which usually ends up meaning higher ticket prices for consumers.

&#9660 HP + Palm

A decade ago, Palm was the forerunner of the burgeoning mobile device industry. Today, the PalmPilot is a nostalgic curiosity along the lines of the Rubik’s Cube and the Pet Rock. More recently, the Palm webOS mobile operating system, first launched in 2009, has been praised by critics, but the company lacked the hardware to complement it, and remained an also-ran to Apple, Google and RIM. That could change with HP’s recent US$1.2-billion purchase of Palm. HP launched a new version of webOS this fall, smartly dropping the Palm branding from its name, and plans to use the operating system on a variety of new devices. Whether any of them is an iPhone killer remains to be seen.

&#9650 Live Nation + Ticketmaster

It’s hard to imagine a company more maligned for monopolizing and price-gouging than Ticketmaster. Yet the U.S. Department of Justice still saw fit to approve a merger between the ticket sales and concert promoter Live Nation, albeit a conditional one. Along with having to license a copy of its ticketing software to two other companies, the department stated that “the merged firm will be forbidden from retaliating against any venue owner that chooses to use another company’s ticketing services or another company’s promotional services.” Considering such recent accusations as Ticketmaster’s directly pushing tickets to online reseller TicketsNow — which it purchased in 2008 — for resale at premium prices, it’s no wonder the merged company will be known as Live Nation Entertainment.

&#9660 Novartis + Alcon

Swiss-based pharmaceutical company Novartis took a major step in its two-year battle to merge with eye-care product producer Alcon, when it bought a 52% stake in the company from Nestle for $28 billion, bringing its total share to 76%. This fall, Alcon replaced its chairman with the head of Novartis’s board. This has incensed a group of independent directors who have been resisting the buyout. Novartis says any possible merging of the two companies is up to the Alcon board of directors, giving the independent directors, who represent Alcon’s minority shareholders, no say.

&#9660 Cadbury + Kraft

In 2009, Cadbury chairman Roger Carr called a US$16.7-billion takeover bid from Kraft Foods an “unappealing prospect,” pointing to Kraft’s “low-growth, conglomerate business model.” But Kraft CEO Irene Rosenfeld wasn’t dissuaded, and launched a hostile bid for the U.K. candy company. This fall, she finally succeeded, with an increased bid of US$19 billion. British nationals were aghast at seeing the 186-year-old candy maker sold to an American multinational. Even the usually quiet Warren Buffett, whose Berkshire Hathaway owns nearly 10% of Kraft, decried the deal, saying Kraft’s sale of its pizza business to Nestle to raise money for the Cadbury deal was “enormously tax-inefficient.” As for Carr, his stance has softened somewhat over the past 12 months. He now calls the deal a “good value” for shareholders.

&#9660 AIG + MetLife

American International Group has been liquidating its assets to repay a massive government bailout it received in 2008 — equalling nearly US$200 billion — after its credit ratings were downgraded and its stock dropped more than 95%. Bad news for AIG, but good news for MetLife, which had been eyeing the AIG-owned American Life Insurance Co. for two years. MetLife paid US$15.5 billion for ALICO in cash and stock. The deal took place just a week after AIG sold its Asian unit, American International Assurance, to the U.K.-based Prudential for US$35.5 billion, the insurance sector’s largest deal ever. The sales will allow AIG to repay the Federal Reserve Bank of New York more than US$30 billion in cash, plus more as it sells Prudential and MetLife stock over the coming years.

&#9650 Amazon + Woot

It was hardly the biggest deal of the year, but it was possibly the most entertaining. This summer, for a reported US$110 million, purchased Woot, the self-mocking e-tailer that sells only one item each day at discounted price. “We think now is the right time to join with Amazon because, quite simply, every company that becomes a subsidiary gets two free downloads until the end of July, and we very much need that new thing with Trent Reznor’s wife on our iPods,” said CEO Matt Rutledge in a press release announcing the deal. It was a typically tongue-in-cheek announcement from the company that frequently offers a daily special called “Bag of Crap,” a mystery item sold in a brown paper bag. Amazon says it has no plans to change Woot’s business model.

&#9650 BCE + CTV

Two former media players decided to re-enter the content game this year. BCE reacquired full ownership of the CTV Television Network and a 15% stake in The Globe and Mail from CTVglobemedia in a $1.3-billion deal. The other 85% of the Globe was purchased by the paper’s former longtime owners, the Thomsons. Many see the Globe as a sentimental purchase for Canada’s richest family. When late patriarch Ken Thomspon sold his newspaper holdings in 2003, he memorably said, “You can’t run a business on sentiment.”

&#9660 Canwest + Shaw

For Leonard Asper, 2010 will always be the year he watched his late father’s empire crumble. Canwest Global Communications was forced to start selling assets this year after entering creditor bankruptcy protection in 2009. Although Asper tried to save Canwest’s newspaper division from court-supervised restructuring with an impassioned plea to the bank, the company’s properties, including such titles as the National Post, the Calgary Herald and The Vancouver Sun, were eventually sold to a group of investors led by National Post CEO Paul Godfrey for $1.1 billion. Shaw Communications also benefited from Canwest’s demise, picking up a majority voting interest in its broadcast division, consisting of ownership and stakes in a number of local and specialty cable channels for a minimum of $95 million.

The messy mergers

To protect or not to protect — the question weighed heavily on national governments as they slowly recovered from the global recession. In the current climate, foreign interest in national assets inevitably causes concern. Here, we review the top takeovers — at home and abroad — of 2010.

Takeovers in Canada

&#9660 Carl C. Icahn, New York
Target: Lions Gate Entertainment Corp., Vancouver
Deal value: $717,160,123

In March, at $7 per share, American financier and private equity investor Carl Icahn bought an additional 15.2% of the Canadian entertainment company, bringing his overall stake to 37.9%. But further attempts by Icahn to increase his hold on the studio proved difficult. Following Ichan’s initial hostile bid in March, Lions Gate issued 16.2 million new common shares to company founder Mark Rachesky. The move effectively diluted Icahn’s stake to 33.5%. The British Columbia Securities Commission recently granted Icahn an application to cease trade on a poison pill provision that prevented him from owning more than 38%.

&#9660 BHP Billiton Ltd., Melbourne, Australia
Target: Athabasca Potash Inc., Saskatoon
Deal value: $341,000,000

For all the recent objections surrounding the sale of Potash Corp., there were virtually none when BHP Billiton, the world’s largest mining company, acquired Saskatoon’s Athabasca Potash earlier this year. Athabasca shareholders were thrilled with the $8.35 per share offering, more than double what the Athabasca stock was worth in July 2009 when the company began to consider takeover deals. With the takeover, BHP now has access to over 14,000 square kilometres in the Saskatchewan potash basin.

Takeovers abroad

&#9650 Ontario Teachers’ Pension Plan, Toronto
Target: Camelot Group Plc, Watford, U.K.
Deal value: $631,891,600

It took nearly a year for the OTPP, one of Canada’s largest retirement plan, to finally win its bid to take over U.K. national lottery operator, Camelot. Amid the expected talk about British assets being sold to a foreign firm, there was also concern the deal would affect the National Lottery Commission’s commitment of $1.2 billion to help stage the London 2010 Olympic and Paralympic games. No stranger to British investments, the OTPP also holds substantial portions of both the Birmingham and Bristol airports. With Camelot generating $2.6 billion a year, OTPP’s British assets have never looked better.

&#9650 CGI Group Inc., Montreal
Target: Stanley Inc., Arlington, Va.
Deal value: $1,116,866,000

It was good news for all parties when CGI, Canada’s largest independent computer services company, acquired Stanley, an IT service provider to U.S. defence, intelligence and civilian government agencies. Bought at $37.70 per share, the transaction was unanimously approved by both companies’ boards of directors. Based on 2009 numbers, the two companies have a total revenue of $4.6 billion and 31,000 employees. With the acquisition, U.S. operations now account for nearly half of CGI’s global revenue.

&#9650 Biovail Corp., Mississauga, Ont.
Target: Valeant Pharmaceuticals International, Aliso Viejo, Calif.
Deal value: $2,255,000,000

Eugene Melnyk, the founder of pharmaceutical company Biovail, urged shareholders to vote against the merger with California-based Valeant. His call fell on deaf ears; shareholders were 99.9% in favour of merger. So was the market — since the June announcement Biovail shares have risen to just over $27, from $15. The company will take the Valeant name but remain headquartered in Mississauga with Biovail shareholders controlling 50.5% and Valeant the remaining 49.5%.

— by Kasey Coholan