2003 was a stellar year for large and innovative business deals in Western Australia. Mark Beyer, Tracey Cook and Noel Dyson detail the year's best.
2003 was a stellar year for large and innovative business deals in Western Australia. Mark Beyer, Tracey Cook and Noel Dyson detail the year's best.
IN a year with many highlights, Alinta’s Aquila transaction stood head and shoulders above all other corporate transactions in Western Australia.
A clear majority of corporate finance executives surveyed by WA Business News nominated the Aquila transaction as the year’s top deal.
It featured highly innovative solutions to numerous complex issues, and has been transforming for Alinta and strongly positive for shareholders.
The transaction stabilised Alinta’s ownership and resulted in it becoming the operator and part owner of $4 billion of energy assets across Australia (see accompanying article).
Argonaut Capital executive chairman Charles Fear had no hesitation in nominating the Aquila transaction.
“It was clearly the best deal of the year,” Mr Fear said.
“The market has embraced the deal and [managing director] Bob Browning and [chairman] Tony Howarth deserve all the accolades that will come their way.
“Macquarie also deserves praise for thinking outside the box.”
Bell Potter Securities head of corporate WA Peter Wallace was another fan of the Aquila transaction.
“It really stands out from my perspective as it has broken the company out of the staid, government utility mould and brought a new dimension to the company,” Mr Wallace said.
Two other transactions that were very highly regarded were Bristile’s defence of the Brickworks’ takeover and the financial reconstruction of Minara Resources (formerly Anaconda Nickel).
When Brickworks launched its Bristile takeover offer in March 2003, it already had a 22 per cent shareholding and success was considered inevitable.
Yet Bristile managing director David Gilham mounted a vigorous defence, forcing Brickworks to twice lift its offer from the original $3.15 per share to $3.875 per share (including dividends of 22.5 cents) before it eventually succeeded.
Mr Gilham said the key to success was ensuring that shareholders understood the real value of the business, rather than the value the market happened to place on it.
He added that Bristile was well prepared for the takeover, and was unfazed by the absence of alternative bidders.
“It was obvious that sooner or later they would be tempted so we were prepared for them,” Mr Gilham said.
PricewaterhouseCoopers head of corporate finance and investment banking Perth, Angel Barrio, said it was notable that the final price was above the valuation provided by Grant Samuel, the independent expert.
“After making an offer below the independent expert’s range, raising it only slightly to the lower end of the range and seemingly playing hard ball by postulating they would withdraw their offer, it was interesting to see that Brickworks came out of closed door discussions paying an amount above the expert’s range,” Mr Barrio said.
“Hats off to the directors of Bristile.”
While UBS had an advisory role in the transaction, the key player was Mr Gilham, whose commercial acumen was obviously recognised by Brickworks.
Upon completion of the takeover, they invited him to join their board of directors.
Minara’s financial reconstruction was extraordinarily complex.
It involved a negotiated scheme of arrangement with bondholders, who could have foreclosed after the company defaulted on interest payments, and a $323 million rights issue at 5.0 cents per share.
The company also had to fend off an unsolicited bid from US investment fund MatlinPatterson priced at 12.0 cents per share.
The key players included managing director Peter Johnston and former chief financial officer Paul Chapman, who is now managing director of Reliance Mining.
Minara’s main external advisers were Sydney based Caliburn Partnership and New York based Lazard Freres, with Clayton Utz providing comprehensive legal advice and representation.
Compared with 18 months ago, when the company’s prospects looked bleak, Minara is now an independent company with a solid balance sheet and the prospect of long-term success.
From a purely financial perspective, investors who bought stock in the rights issue have been big winners, with the share price rising four-fold (after adjusting for a consolidation).
Some of the year’s biggest transactions attracted highly varied assessments.
Multiplex’s $900 million initial public offering was a prime example, winning accolades from some market observers and being dismissed as a doddle by others.
In the former category was Freehills corporate finance partner Justin Mannolini.
He said the best deals had something in them for all parties, rather than where one party gets the better of another.
On that basis, he assessed the Multiplex deal, which ‘stapled’ a new property trust to the existing construction business, as highly successful.
“UBS used a fairly novel structure that satisfied the requirements of the [Roberts] family and delivered a solid investment vehicle to the market,” Mr Mannolini said.
“They read the trends in the market in relation to property trusts quite well.
“The deal also gives the family on-going control as well as liquidity for their holding.
“It’s a nice balance.”
Other market observers were much less flattering, saying the Roberts family had been waiting two years for the right time to float.
The critics also believe many other broking firms could have put together a similar and equally attractive structure.
HBOS’s takeover of BankWest also attracted divergent opinions, with several market players critical of the independent directors of BankWest for failing to extract a higher price from HBOS.
“They rolled over far too quickly,” said one corporate adviser.
“They obviously didn’t have the heart for a fight.”
The HBOS takeover, via a scheme of arrangement, followed several failed attempts by HBOS to find a buyer for its controlling stake.
From HBOS’s perspective, the use of a scheme was an effective means of winning full ownership of a WA business icon, in the face of spirited opposition from minority shareholders.
Fearis Salter Power Shervington partner Neil Fearis noted that the Australian Securities and Investments Commission tightened its scrutiny of schemes of arrangement following their use by HBOS and Xstrata (which acquired mining giant MIM) in controversial circumstances.
“In the wake of those two transactions, we saw a significant tightening up by ASIC of their scrutiny,” Mr Fearis said.
Wesfarmers’ sale of its Landmark rural services business to AWB was one of the year’s surprise deals, for two reasons.
First, the $825 million price tag staggered the market.
Second, the deal was completed in total secrecy, with AWB handing over its cheque on the day of the announcement, thus removing any risk for Wesfarmers.
Straits Resources’ sale of the Nifty copper mine to India’s Aditya Birla Group was another surprise transaction.
The price of $89.8 million was considered an exceptional result for Straits, although the subsequent strength of copper prices would have left Birla feeling pleased with the transaction.
One of WA’s most acquisitive companies is Internet service provider iiNet.
After securing several small ISPs during the year, it doubled in size by acquiring New Zealand ISP ihug late in the year.
iiNet managing director Michael Malone praised the contribution of chief financial officer Clayton Hollingsworth, who negotiated all of the acquisitions with the kind of financial discipline he learned at Wesfarmers.
Among the many IPOs during the year, arguably the most successful was MPI Mines.
After raising $7 million at 40 cents per share, its stock has risen four-fold to around $1.70 per share.
Even bigger gains have been achieved by retractable syringe developer Unitract, which is building its production facility in Sydney while retaining corporate connections in Perth.
West Perth advisory firm Grange Consulting coordinated the back-door listing of Unitract in November 2002, via the old Musgrave Block Holdings.
It initially raised capital at 20 cents a share and, during 2003, raised a further $20 million at either $1.75 or $2.50 a share.
