Cooperation gives higher payoffs

In the article provided, the players manage to achieve their goal and higher payoff by cooperating against their rival.


http://www.reuters.com/article/reutersEdge/idUSL1742352720071017

Trade buyers team up to triumph in M&A
Wed Oct 17, 2007 1:31pm EDT

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By Mark Potter and Eleanor Wason - Analysis
LONDON (Reuters) - Team work is playing an increasing part in the traditionally cut-throat world of corporate mergers and acquisitions (M&A).
Danish brewer Carlsberg (CARLb.CO: Quote, Profile, Research) and Dutch rival Heineken (HEIO.AS: Quote, Profile, Research) on Wednesday became the latest companies to join forces in a bid to buy and break up a competitor -- Britain's Scottish and Newcastle (SCTN.L: Quote, Profile, Research).
This, on the day that a consortium of banks led by Royal Bank of Scotland (RBS.L: Quote, Profile, Research) completed their takeover of Dutch bank ABN AMRO (AAH.AS: Quote, Profile, Research), and while British chemicals group ICI (ICI.L: Quote, Profile, Research) is also in the midst of being carved up by two of its rivals.
With debt markets clogged by the fallout from losses on poor quality U.S. mortgage loans, and equity markets suffering bouts of volatility, the team-up trend could be here to stay, investors and bankers say.
"It's all to do with reducing your risk," said one M&A banker at a major investment bank in London.
"If everything is going fantastically well in debt and equity, you can buy all of it (the target business) and auction bits off." If not, it can be better to form a consortium and agree a break up before the deal is done, he continued.
Richard Cranfield, a partner at law firm Allen & Overy which advises on M&A deals, said consortium deals were often complicated to put together, but that apparent successes -- notably the RBS-led bid for ABN AMRO -- could encourage more.
"The execution risk is now better understood...It's about the experience of doing them successfully," he said.
Colin Morton, a fund manager at Rensburg Fund Managers, said the Carlsberg/Heineken move for Scottish & Newcastle was reigniting speculation about other potential corporate break-up targets, such as food and consumer goods giant Unilever (ULVR.L: Quote, Profile, Research) (UNc.AS: Quote, Profile, Research) and mobile phone group Vodafone (VOD.L: Quote, Profile, Research).
But much would depend on the macro-economic outlook, which is currently in the balance, he said.
"If things get any worse, you'd typically expect M&A to dry up," Morton said. "What you're seeing at the moment is that a lot of companies have been through a lot of restructuring over the past five years or so. They've cut debt and restored profitability and they're now wondering what next? Doing a deal can give them another few years of cost-savings. But valuations are high, so they're often getting together with someone else."
REASONS TO COOPERATE
Allen & Overy's Cranfield said there were many reasons why companies get together to do an M&A deal.
One is to give them more chance of success in a bid battle.
RBS's decision to team up with Spain's Santander (SAN.MC: Quote, Profile, Research) and Belgium's Fortis (FOR.BR: Quote, Profile, Research), for example, gave it a decisive advantage over Britain's Barclays (BARC.L: Quote, Profile, Research), which was trying to buy ABN AMRO on its own.
Another reason to find a partner is to avoid buying something you don't want.
Hence British insurer Standard Life's (SL.L: Quote, Profile, Research) is working with Swiss Re (RUKN.VX: Quote, Profile, Research) on a possible bid for Resolution (RSL.L: Quote, Profile, Research) because it is not interested in the target's closed life funds.
A third motive is to drive up the price of a bid to persuade a reluctant seller.
Dutch chemicals group Akzo Nobel (AKZO.AS: Quote, Profile, Research), for example, managed to increase its bid for ICI by over 10 percent -- and win over the British company's board -- after it struck a side deal to sell on some assets to Germany's Henkel (HNKG_p.DE: Quote, Profile, Research).
Looking to avoid trouble with competition regulators is a further reason to work with another company.
"That's why you've got Carlsberg and Heineken coming together," Rensburg's Morton said.
"Getting together might be complicated. But if you can get through that, it can often make a complicated deal easier."

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