December 8, 2016 / 5:09 PM / 8 months ago

Deal remorse puts investors in sorry state

An Abbott company logo is pictured at the reception of its office in Mumbai, India, September 8, 2015.Shailesh Andrade

NEW YORK (Reuters Breakingviews) - A spate of corporate deal remorse has left investors regretful, too. Abbott Laboratories on Wednesday cited "material adverse events" in a legal bid to end its $5.8 billion takeover of medical-test maker Alere. Similar tensions have arisen in mergers involving Yahoo, Williams and Cigna. They all help make the case for heightened shareholder skepticism.

Abbott's acquisition of Alere at a 51 percent premium hit shaky ground soon after the two companies agreed to unite in January. An unexpected delay in filing Alere's financial statements led to revelations about investigations into bribery and billing practices, and eventually revisions to its figures. A federal subpoena a few months ago caused Alere shares to plummet again. Abbott's latest effort to wriggle out of the deal pushed them below where they were trading before the sale.

Verizon, too, is having second thoughts about paying $4.8 billion for Yahoo's core business. Word of a massive email hack at the internet outfit came to light only after the telecom titan inked the transaction. Likewise, oil and gas pipeline operator Energy Transfer Equity this summer successfully backed out of its $33 billion deal to buy rival Williams on a tax-related technicality after trying for months to escape. And even as the Justice Department attempts to block Anthem's $48 billion acquisition of Cigna, the U.S. health insurers are at odds over the merger.

Such ructions can be expected at the peak of a merger frenzy and as the cycle starts to turn down. Buyers get more aggressive, testing regulatory, structural and financial limits as well as the patience of their targets' managers. In U.S. deals of over $1 billion, the average wait from a deal's announcement to closing is at its longest in over a decade at 148 days, according to Thomson Reuters data.

The longer the lag, the more likely problems will crop up. Even astute M&A watchers have been caught wrong-footed. Merger arbitrageurs, up only 1.3 percent this year through October, are the worst performers among event-driven hedge funds and trail the industry broadly, according to research firm HFR. That suggests shareholders should be ready to sell near an offer price in some cases rather than wait around for closing and any later deal benefits. Better to be safe than sorry.

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