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With AT&T Bid, Are Hostile Takeovers Back?

Trends: As firms become more aggressive, some analysts say they are reminded of the 1980s.


Could AT&T Corp.'s unsolicited, $58-billion bid Thursday for MediaOne Group be a sign of a return of the hostile takeover, that calling card of the 1980s?

Although hostile takeovers can be drawn-out affairs, costly and difficult to win, some Wall Street bankers have been predicting their return for months as companies become more aggressive about building global franchises.

"A high-profile transaction like this by a high-profile company like AT&T reintroduces the idea," said Steve Bottum, head of the merger and acquisition advisory group for Thomas Weisel Partners, a San Francisco investment bank. "We've been seeing more hostiles, but something like this makes it easier to other companies to pull the trigger."

In Thursday's bold move, AT&T offered 17% more for cable TV giant MediaOne than the current value of the merger deal reached between Comcast Corp. and MediaOne two months ago.

AT&T said its bid, a combination of cash and stock, also is 26% above MediaOne's stock price as of Thursday.

Some bankers said AT&T's bid is not a true hostile offer because MediaOne has already said it is for sale. Many called this a "topping bid" rather than a traditional hostile offer, and said it will not be as easy to fend off as an unsolicited bid for a company not already "in play."

"Once a company has agreed to a price, the board has an obligation to go with the highest price," said one Los Angeles investment banker who did not want to be named. "They can't just say no. It's not as hostile when someone has already said they are for sale."

Still, such offers have been rare amid the merger frenzy of the last two years. Most companies that have made friendly offers for others, such as Comcast's offer for MediaOne, have succeeded and haven't faced competition.

Of the $425 billion in announced mergers involving U.S. companies so far this year, only $1.6 billion have been hostile offers, according to Mergerstat, a data service owned by Los Angeles investment bank Houlihan, Lokey, Howard & Zukin.

Worldwide, takeover activity has reached $922 billion so far this year, up 28% from last year's record pace, Securities Data Co. said.

As long as stock prices overall continue to rise, chief executives will feel emboldened to use that "currency" for acquisitions in their quest to gain a competitive edge over rivals, bankers say. Takeovers still often permit a company to grow more inexpensively than by trying to build a new business from the ground up.

"Where people see friendly deals being struck and there are opportunities they don't want to miss out on, they will come in with an unsolicited bid," predicted Alison Ressler, a Los Angeles mergers lawyer with Sullivan & Cromwell. "If you are willing to provide a better premium, you can prevail."

In recent months, some bankers and lawyers have been advising their corporate clients to stock up on "poison pills" and "shark repellents," nicknames for legal measures that help ward off corporate predators.

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