2012 Deals Hinge on Goldman Sachs' Idea of 'Fairness'
NEW YORK (TheStreet) -- Should investors beware of big takeover bids bearing a share premium? For Goldman Sachs(GS) , the answer increasingly signals an emphatic "yes."
A flurry of recent high-priced bids from big-league buyers such as Roche, Martin Marietta(MLM) and Carl Icahn have all been given the thumbs down by Goldman as the Wall Street bank offered less than favorable "fairness opinions" on the bids.
While shareholders are the ultimate arbiter whether a bid is fairly priced, those deals reveal that Goldman Sachs is becoming more vocal on M&A prices and the management of the targeted companies are more than happy to use Goldman's word to scuttle a deal in hopes of a higher offer or an earnings recovery.
A fairness opinion is given by an investment bank as an independent analysis that should help shareholders sort between what is a fairly valued bid and what is opportunism.
So far, Goldman has seen a lot of opportunism. In three of the largest hostile offers of 2011 and early 2012, Goldman Sachs investment bankers have urged company managers and shareholders to turn down bids, with the expectation that either share price gains or a stronger offer would be available in the future.
The near $5 billion recent hostile offers for both genomics machinery makerIllumina(ILMN) by Roche and Construction aggregates giant Vulcan Materials(VMC) by Martin Marietta were considered "inadequate" by Goldman Sachs.