With the Foodland takeover battle close to completion, Tethyan Copper this week became the latest takeover target in Western Australia. Mark Beyer looks at recent takeovers and finds a low success rate.
Just when the WA takeover scene seemed to be falling into a lull, Hong Kong-based merchant bank Crosby Capital Partners has bobbed up out of left field and launched a $101 million bid for exploration company Tethyan Copper.
Crosby’s move is the 12th public bid for a WA company in the past year – a busy period for takeovers.
It has also been a notably unsuccessful period for hostile takeover bids, with Kerry Packer’s Publishing & Broadcasting the only company to get its way with its cash takeover of Burswood.
At first glance, Crosby seems to have avoided some of the pitfalls that left other bidders floundering.
It is offering cash rather than scrip and its bid is at 32 per cent premium to Tethyan’s share price.
Crosby, advised by Freehills partner Justin Mannolini, is also seeking to tempt Tethyan shareholders by highlighting the risks facing that company, which is proposing to develop a copper project in Pakistan.
The simplicity of its bid contrasts with the complexity of Metcash’s long-running bid for Foodland Associated, which among other things was subject to a major capital reconstruction (since completed) and involved the separate sale of Foodland’s New Zealand assets.
When WA Business News went to print, the companies were understood to be in negotiations with Woolworths over the break-up of Foodland’s assets.
Market speculation suggested Woolworths wanted to acquire some of Foodland’s Action supermarkets, as well as the NZ assets, contrary to Metcash’s initial plan to sell the Action supermarkets to independent operators.
If Metcash buys Foodland on Woolworths’ terms, its takeover will be seen as a partial success.
That still puts it ahead of most other bidders, who clearly failed.
IWL, for instance, already held 19 per cent of JDV before launching its scrip bid and only picked up another 10 per cent.
Its task was greatly complicated by Westpac and Royal Bank of Canada each owning 29 per cent of the target company and rejecting the IWL bid.
Asset Backed Holdings, CopperCo and Sedimentary Holdings are other companies to have launched unsuccessful scrip bids in the past year.
Corporate adviser Michael Ashforth of Gresham Partners said he was not surprised by the outcome of some of these bids.
“Hostile scrip bids are the hardest to do, and when you do them at the junior end of the market it’s even harder,” Mr Ashforth said.
“The risks are significant because the bidder is opening itself to scrutiny of its own assets and management capability.”
Corporate lawyer Neil Fearis of Fearis Salter Power Shervington agreed that scrip bids could be attacked on the basis of both their price and the quality of the scrip.
“History shows that hostile scrip bids have a very low chance of success,” Mr Fearis said.
Cleveland-Cliffs’ takeover of Portman Mining could arguably be categorised as a success, even though it only acquired 80.4 per cent of its target.
Cleveland-Cliffs has gained management control and it avoided a $30 million stamp duty bill.
If it moves to full ownership in three years time, it will only pay stamp duty on the additional scrip it buys at that time.
While the hostile takeovers have mostly failed, there have been several successful ‘friendly’ or ‘agreed’ takeovers.
These include Consolidated Minerals’ acquisition of Reliance Mining, French company Lyreco’s purchase of National 1 and LionOre Mining International’s purchase of MPI Mines. Asset Backed Holdings may have learnt from this experience.
After failing with its bid for Christmas Island phosphate miner Phosphate Resources, Asset Backed Holdings sat down with Phosphate and negotiated a scheme of arrangement, which is now proceeding.
