Opportunistic takeovers are back in fashion as plunging share prices have brought corporate market values to bargain basement levels, but shareholders are increasingly disgruntled by the way companies are waging such battles.

Target companies such as the U.K.'s Bradford & Bingley PLC (BB.LN) and Expro International PLC (EXR.LN) are playing hardball with potential bidders and have raised shareholder concern that high value offers have been rejected.

Shareholders in acquisitive companies, like France Telecom (FTE), are also unhappy at the way the company has pursued takeovers despite the obvious chagrin of their investors.

Last week, oil services company Expro saw off U.S. giant Halliburton Co. (HAL) after a hotly contested takeover battle ended in court.

The court sanctioned a GBP1.8 billion offer from alternative bidder Umbrellastream, a consortium made up of Candover, AlpInvest Partners NV and Goldman Sachs Capital Partners (GS), despite it being 10 pence a share lower than the GBP1.82 offer for the company made by Halliburton.

Meanwhile troubled U.K. lender B&B is plowing ahead with a GBP258 million rights issue and GBP179 million investment from U.S. buyout shop TPG, in return for a 23% stake, having refused to allow financial restructuring firm Resolution access to its books.

Resolution said "the entrenched position of the board" prevented it doing sufficient due diligence and finalizing revised proposals to put to shareholders.

"The problem is that boards think they have done a deal and don't want to do a U-turn even if it may be in the interests of shareholders to do so," said Roger Lawson of the U.K. Shareholders Association.

This is often because they are more concerned about preserving their own jobs and those of management than appeasing shareholders, he said.
While Resolution had support from four of B&B's leading long-only investors, it is often hedge funds that are behind alternative bidders and who are keen to trigger an auction process in order to get a higher price.

In the Expro case, several hedge funds piled into the stock, mostly buying at prices well above Umbrellastream's offer. Investors included New York's Mason Capital Management, Sandell Asset Management and Carlson Capital LP as well as London's Trafalgar Asset Managers Ltd., which paid as much as 1,666 pence for contracts for differences based on the company's share price.

Mason and Sandell, which together owned 15% of Expro stock, led efforts to delay the takeover procedure, giving Halliburton more time to come back with a firm offer.

But the court rejected these attempts, saying it was satisfied that Expro's board had legitimate concerns that an auction process "might not produce a higher price and that there was a higher general transactional risk in accepting Halliburton's bid."

The hedge funds were also criticized because in holding CFDs they had no economic interest in the shares, being focused instead on movements in the share price, and are not registered to vote on proposals.

The implication here is that hedge funds are short-term traders and not interested in the long-term value of the company. "Hedge funds may want to expose themselves to the risk (of no higher bid emerging), we don't," an Expro executive said in evidence.

Long-term versus short-term 

But institutional long-only shareholders are also throwing their weight behind potential bidders - four of B&B's largest investors supported Resolution's plans for the company and one long-only investor in Expro said "it was outrageous that the board didn't run an auction process."

Meanwhile opportunistic takeover bids are on the rise, driven by low market values of companies - while boards rebuff such offers on the basis that their companies are undervalued and their own long-term plans are better for shareholders, says Penny Avis, transaction partner at Deloitte.

Friends Provident PLC (FP.LN), the U.K. insurer targeted by several potential acquirers, including Resolution, eventually decided that it would be better to stand alone, shutting the door on a GBP3.5 billion proposal from U.S. private equity firm JC Flowers.

Friends had consistently refused to enter into discussions with Flowers which stalked the company for several months and built up a 2.7% stake. Friends said the proposal undervalued the company.

"Bidders are chancing their arm because of low equity prices - but the bottom line is that directors have a fiduciary duty to act in the best interests of shareholders and if a proposal is in the right ball park the company must give some information," says Avis.

The downside for shareholders when companies refuse to entertain alternative proposals is that their share price immediately falls back to the level of the recommended offer price at best, and pre-approach prices at worst.

Some companies take the opposite approach, thrusting ahead with acquisition plans while shareholders remain unconvinced about the valuation or rationale for a deal.

"Valuations are inherently harder to assess in the current environment. In a proposed deal, companies commit shareholders' money at an implied valuation. If investors don't agree with that, the company is in trouble," said Michael Jary, global managing partner at OC&C Strategy Consultants.

He added that valuations are less stable due to a backdrop of economic uncertainty and stock market volatility.

France Telecom's $42 billion abandoned pursuit of Swedish phone company TeliaSonera AB (TLSN.SK) is a prime example of what can happen when shareholders' views part ways with the board.

France Telecom stock plummeted by around 20% since the company first disclosed its interest in TeliaSonera, only to rise around 7% on the Paris Bourse on June 30, the day it dropped the bid.

Shareholders were wary of a deal that would have given the company exposure to new markets but promised little in the way of traditional merger cost-cutting opportunities and extra profit. They were also mindful that an ill-fated buying spree took the company close to bankruptcy during the last wave of telecom consolidation, analysts say.

In addition to creating share volatility, boards that refuse to listen to shareholders or embark on empire-building exercises without shareholders' backing may also have to deal with credibility problems going forward and in some cases heads may roll. One banker said that the position of France Telecom's leading executives would have been precarious if the company had pressed ahead in its bidding for TeliaSonera.