John Willson has done the unthinkable. The chief executive of Placer Dome had every opportunity to follow the noble corporate tradition of overpaying for a “strategic” acquisition—complete with a bidding war against a rival mining company —and he blew it. In early April, the gold producer offered to pay $425 million for International Musto Explorations, a junior mining company with a stake in a Latin American motherlode. But when that offer was aced by a $510-million bid from Rio Algom, cool reason prevailed. Rather than blocking Rio Algom’s shot with a bellow of rage and a
rich counteroffer, Willson declined to proceed with a costly courtship.
This sort of sensible behavior threatens to establish a disturbing precedent in the chest-thumping world of corporate mergers and acquisitions. Surely, Willson must know that a good M&A rumble requires a company to blow its budget, cast aside its careful asset valuations and trash-talk the incumbent management. After all, stalking another company is one of the few remaining ways to scratch that primordial tribal itch to hunt and gather.
In the heady days just before the 19811982 recession, Dome Petroleum and PetroCanada indulged in most of their extravagant binge shopping. Dome exists no longer, but Petrocan is still rummaging through its closets, throwing out operations that it bought on impulse and wore only once. In the late 1980s, immediately before
the last recession descended, and global commodity prices crashed—Nova Corp. fought hard to pay top dollar for Polysar Energy & Chemical, and Noranda cheerily shelled out for the peak earnings of Falconbridge, and Stone Container crowed over the 50-per-cent premium it managed to pay for Consolidated Bathurst.
Still, despite the repeated assurances that things really are different after the latest recession, there is an eerily familiar look to the corporate landscape these days. As soon as earnings are restored and piggy banks are full, the roving eyes return. According to Newark, N.J.-based Securities Data Co., the volume of mergers in the United States was $100 billion in the first three months of 1995 and the volume of worldwide M&A in the first quarter was $180 billion—up 26 per cent from a year earlier.
At home, things began to simmer last year when Rogers Communications paid $3.1 billion for Maclean Hunter. A few months later, Barrick Gold fought off other contenders and won the hand of Lac Minerals for $2.3 billion. Canfor subsequently launched a $650-million takeover campaign against Slocan, which sputtered to an end last February. But just weeks later, Wallace McCain decided to spite his brother following a family spat, by acquiring Maple Leaf Foods for $1 billion. Now, Seagram is paying $8 billion for control of MCA, and Onex Corp. is reportedly inching towards a takeover offer for Labatt.
But in this swirl of activity—accompanied by the usual sound track of self-justification—there is one proposed mega-deal that stands out: the $32-billion grab for Chrysler by bully boys Kirk Kerkorian and Lee Iacocca. As a significant Chrysler shareholder, Kerkorian’s play is right on the money. When it comes to cash reserves, you can’t trust senior management not to blow it. Kerkorian wants to get his mitts on Chrysler’s $10-billion kitty, either by seizing it directly or by forcing the company to distribute it to shareholders in the form of a cash dividend.
Chrysler management righteously insists that, like its Japanese competitors that maintain sizable cash cushions, it needs its stash to survive the next time the wheels come off the industry. The rub is that North America is not Japan. Ownership is structured differently here, and investors have different agendas. We probably should be better at long-term planning. But then we’d also need more renegade CEOs, like John Willson, who Just Say No. However tempting the splurge may be.
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