US contested bids: perfectly rational compared to Dogecoin

As the pandemic lessens its grip on economies and summer heaves into view, even North American boardrooms are feeling more than a little YOLO. The acronym that stands for “you only live once” means there is no time like the present to do that big deal — even if the target company is reluctant. Earlier this week, Canadian National made a $34bn bid to acquire railroad rival Kansas City Southern. KCS, however, had already inked a $29bn deal with another north-of-the-border player, Canadian Pacific. 

At the same time, Chubb is interested in fellow insurance titan The Hartford ($24bn market cap), which has summarily rebuffed its rival. Optical equipment maker Coherent at one time this year was weighing three different suitors before it picked one. Even wayward companies such as Tribune and Hertz have become the subject of bidding wars. The existing equity of the battered car rental company may even be worth something as a result.

Shareholders are rewarding growth, private equity and debt markets will seemingly fund anything and chief executives love nothing more than building empires. 

In the railroad industry, there are only so many tracks you can own. When Canadian Pacific signed up to acquire KCS at a 23 per cent premium, it was grasping a singular opportunity to create a network from Mexico to the Great North. Now Canadian National has gatecrashed the tie-in, the only certainty is that KCS shareholders will be the beneficiaries of a winner’s curse.

According to figures from Deal Points Data, “jumped” deal volume essentially fell to 0 in 2020. By the first quarter, nearly $90bn worth of companies were caught up in bidding wars.

Takeovers conventionally make sense when two variables are satisfied: fit and price. Ticking one box is tricky. Ticking both is well-nigh impossible when public bidding inflates prices. But we live in a world of soaring special purpose acquisition companies, non-fungible tokens, and Dogecoin. Paying top dollar for a plain old business, even one that is playing hard to get, seems perfectly rational in comparison.

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