SkyTerra Communications, Inc., 9/23/2009 sale of company. This is another buyout of another local satellite company for approximately the same transaction value as Iridium—all in the same week. For a total transaction value of $536M, Harbinger Capital bought out the half of the public shares of SkyTerra that it did not own. This resulted in 56% premium to the public stock price.
Let’s talk premiums. M&A premiums in the U.S. market (the observed purchase price of a publicly held stock above some level that it traded at prior to the M&A announcement) have trended upward in the last two years. Over the last two decades, depending on what time frame you use, a 25% M&A premium has been the average. There are years when the deviation is significant. Over the past twelve months, the premium has trended to approximately 38% by some measurements. Dell paid a 67% premium for Perot Systems. Kodak paid an approximate 35% premium for ACS. You would think that these premiums must be evidence of a great M&A revival. Not exactly. At least two things are happening that explain this trend. The first is that there are fewer transactions. An average is an average, but there is going to be more variability with a smaller data sample. More importantly, public company stock prices have been deeply depressed by the recession. There are some real buying opportunities out there, if you believe the market will recover soon. You are seeing some large premiums applied to stocks that are trading well below their 52 week highs. It is a good time to be a buyer, if you have currency. Recently, we followed the announcement of the sale of a New York publicly traded financial services company. The first press release announced an almost 100% premium. The second press report announced the commencement of a class action suit by a law firm noted for its shareholder suits. A 100% premium wasn’t near enough value and some of the target company’s shareholders immediately felt cheated by a low price on a temporarily depressed company. Beware of a simple yardstick.
