10/07/2007 - 22:00

Tales of troubled takeovers

10/07/2007 - 22:00

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Rick Allert and Dick Carter ought to swap notes, because if they did, Mr Allert might learn something about organising a competitive takeover bid, and Mr Carter might learn something about stopping one.

Briefcase, as ever, speaks with a tongue stuck firmly in its cheek. But, as the dust continues to stir around Coles and Consolidated Minerals, there are lessons to be learned.

Mr Allert, who is somebody important in eastern Australia but has a low profile in the west, is the chairman of Coles.

Mr Carter, who boasts a similar Melbourne old boys pedigree, which includes a career with BHP, is chairman of Consolidated but is not a big shareholder (more on that side issue later).

At Coles, it was Mr Allert’s job to see that a high price was paid for the company, which decided it lacked the management will, or vision, to continue on its own. “Please buy me,” was the sign Mr Allert hung on Coles’ front door.

All that then happened was that a bunch of privateers banged their hairy chests, threatened everyone with their big chequebooks and then disappeared, leaving Wesfarmers as the last man standing – also minus its privateer mates.

Was this a competitive bidding process? Perhaps, but only for a while.

By not filtering the genuine bidders from the self-promoting privateers – who suddenly discovered that the real owners of the chequebooks were New Jersey dentists who suffered an interest rate fright in May – Mr Allert found himself looking across the Coles counter at a single customer. None other than the boy from Wesfarmers, Richard Goyder, (who must have felt he had taken a trip back to the future when he was the only customer in the Broomehill general store).

It’s a debatable point as to whether Mr Allert got a good price, or Wesfarmers paid too much.

But what’s not questionable is that the sales process itself fell apart because of an inability to separate genuine bidders from the goats.

•••

At Consolidated it’s precisely the reverse, but the end result might be the same.

Mr Carter, a man with a big-company background, shares a vision with the man who was almost his boss, Brian Gilbertson. They want to turn Consolidated into a $10 billion global resources giant.

Said quickly, it sounds easy. Getting to the target is, however, proving to be a little tricky.

Until a few weeks ago, Mr Carter thought he was standing at the Consolidated counter showing Mr Gilbertson all the best aspects of the company; you know the spiel: “Four on the floor, souped up V6, manganese spoiler, multiple exhausts…yada yada”.

Gilbertson liked Consolidated. Carter liked Gilbertson. A gentlemen’s agreement was struck and an unbelievably complex scheme of arrangement entered into, which had the backing of the Consolidated board (or, at least, those on it at the time).

Then, just when the dust was settling, two things happened. The price of Consolidated’s primary product, manganese, rose sharply, and Michael Kiernan walked into the shop and demanded service – very much to the annoyance of Messrs Carter and Gilbertson.

Harsh words were exchanged and Mr Carter did everything possible to shoo the rival away. “Not good enough” was the essence of the message.

Which, when you think about it, really was a very strange thing for a chairman of a company looking to get the highest price for his shareholders to say.

Perhaps Mr Carter really believes Mr Gilbertson will deliver the $10 billion gorilla he’s promising. Perhaps Mr Kiernan is all hot air.

But surely that judgement is for the shareholders of Consolidated – just as the final word on the Coles sale will be left to that company’s shareholders.

•••

There are two more points to make about the Coles/Consolidated situations. First, there is the question of ‘skin in the game’, and second is the question of deja vu.

Skin first. Mr Carter, for all his good intentions, really does have a problem at Consolidated. He is a very small shareholder in the business – listed as owning 35,000 shares in the last annual report – but leading a sales process which will determine the future of the people who own the other 227,671,630 Consolidated shares.

On a percentage base, he appears to directly represent 0.015 per cent of the company.

That he is well educated in the resources industry is not in question. He has a distinguished track record of running a big business (BHP Iron Ore), but he has also travelled the road of picking what looks to be a winner only to see it become a very bitter experience.

It was on Mr Carter’s watch at BHP Iron Ore that the company embarked on its ill-fated $3 billion investment in hot briqueted iron (HBI). With hindsight, it can be seen that BHP chose the wrong technology. Briefcase wonders whether Mr Carter, this time around, is starting to worry that he might have picked the wrong man.

•••

Now for the ultimate thought for the week – the question of deja vu, or that spooky feeling that we’ve been here before.

Let’s treat this as a bit of a quiz.

1. In what year did a smooth talking boy from WA make a takeover bid for a big Melbourne-based business?

2. In what year did a $1 billion fund raising fail causing a major corporate collapse in Perth.

3.In what year did a debt and interest rate scare frighten the stock market, causing the boy from Perth great angst?

4.In what year did a man called Packer sell a big chunk of his media assets?

5. In what year did gross behaviour and conspicuous consumption become intolerable?

6. In what year did the Fairfax family go on an expansion binge?

For readers who said 2007 to each question, one point per question. For readers who said 1987, one point also – because you’re both right.

The answers:

1.  Robert Holmes a Court was the 1987 pin-up when he plunged ahead with his attempt to snatch control of BHP. Richard Goyder is his doppelganger in 2007, and Coles the target.

2. Merrill Lynch was the investment bank that walked away from a $1 billion funding deal with Bell Group in 1987. Private equity is the amorphous “walker” in the sale of Coles in 2007. Did they do it for the same reason?

3. 1987’s asset bubble led to the October 19 Wall Street crash of that year – and this year, we wait and see.

4.Kerry Packer was selling to Alan Bond in 1987. James Packer is selling to private equity this year.

5. Alan Bond, Laurie Connell and Brian Burke were the winners of the 1987 conspicuous consumption awards. CUBS (cashed-up bogans) are this year’s winners.

6. Warwick Fairfax was the man who almost destroyed the Fairfax empire in 1987 when trying to buy the firm for himself. This year, the family returned via the merger with Rural Press, and immediately embarked on aggressive expansion in radio and the internet.

Don’t we live in interesting times – times that depend almost solely on the capitalist drive of the world’s last great communist country, China.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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