Love in the time of takeovers
So, the preparations for the wedding dance of corporate activity begin, and for many potential newlyweds the intricacies of the bridal waltz are elusive, intimidating and, for some, terrifying. However, there are dance instructors present, seeking to effortlessly guide the steps of the courting couple. If things go to plan, the bride is lead by the groom through the process without much ado – it’s rarely that simple a process. In the meantime, the inter-company negotiations get underway.
One such couple hit the dance floor on Monday when AMP and AXA APH's 54 per cent shareholder, AXA of France, lobbed a $11.76 billion scheme of arrangement takeover proposal for AXA APH (based on AMP's closing price on Thursday). Later in the day Rick Allert, AXA APH’s chairman, elegantly dismissed the proposal saying it was inadequate and didn’t warrant further action.
To quote Mal Maiden from The Age the AXA APH chairman “deployed a standard bid-price maximisation tactic by not spelling out what price might get talks going again”. And if you read the initial rejection again – reading it as much for what was not said – there was no mention of the word ‘never’. Realising that the bid makes sense for all parties at a yet-to-be negotiated price level and that the bidders need AXA’s support to complete the deal, he did not need to be colourful – it was simply a matter of saying “that’s not enough to get my board interested”.
When it comes to takeovers in general, corporate advisors – be they investment bankers, lawyers or communications people –are fluent in a language that encompasses every stage of courtship, love and rejection. The language is not quite as easy to read for others in the market.
Know that when the missives are lobbed, the nuances and phraseology are studied minutely, and those in the game are looking for the subtle signals that hint at future strategy, intent, the size of the wallet, or the degree of patience.
If the object of the affection is not simply being coy and wants to send a message that they would rather jump off a cliff than fall prey, you can expect to see words like “unsolicited and opportunistic” – i.e. we didn’t ask for it and it’s highly unlikely the advisors have had discussions.
Think of the brutal rejection that Graincorp received when it approached Ridley Corporation – the bride was certainly confident she had sorted the wheat from the chaff on that one. Or the premature fob-off Just Group delivered to the proposal from retail Don Juan Solomon Lew. In the end Premier investments managed to woo Just Group with little hassle.
“Unwelcome” leaves little to the imagination and when you read “materially undervalues” and “fail to see the logic” in the context of a scrip bid you know that it’s likely that it will turn hostile and the target wants cash, and lots more of it, if it’s going to agree to any proposal.
In this case, Rio Tinto’s rebuff of BHP’s 3.4 for 1 scrip bid in November 2007 comes to mind. It didn’t quite work out the way either party expected – particularly considering Rio’s rebound relationship, or some would say near-fatal tryst, with a Chinese partner. But a level of civility appears to have been maintained and, as we know, the two parties have been out on chaperoned dates to discuss iron ore.
Sometimes rather than simply requesting her groom put more money on the table before he can get up close and personal, the target pleads for other parties to “please make a rival offer”. Just this week we’ve seen a bride turn her back on a relationship – this time with thousands of Toronto’s teachers.
Transurban’s rejection of the bid lobbed by the Canada Pension Plan Investment Board and Ontario Teachers' Pension Plan included a coded statement that would have pricked the ears of many other interested parties: "Consistent with its fiduciary duties, the Board of Transurban remains willing to engage on bona fide proposals which provide appropriate value and certainty to security holders in a change of control transaction," the company’s press release cooed.
In the context of a joint bid, the conditions imposed by ASIC would ensure that there is an effective auction for Transurban if a rival offer were made, and therefore it is very much in the interests of Transurban to inform other potential suitors that if an offer is made that is superior to the joint bid, the joint bidders must accept it.
Incidentally the response from the joint bidders was also nice: "CPPIB and OTPP note Transurban’s willingness to enter into constructive discussions on bona fide proposals and look forward to the opportunity to discuss the details of the Proposal with Transurban."
In the context of an announcement that also notes that the joint offer was at a 20 per cent cash premium to the market price of Transurban securities, the joint bidders are clearly trying to repel potential rival bidders, and develop some market/securityholder support for their offer by showing it to be 'bona fide'.
Some other favourites include:
“The offer undervalues the true worth of the company” which means ‘I know the analysts can’t see it but we think we are worth more’.
“The Company's share price has been affected in recent times by [examples]. The proposed takeover offer appears to be timed to take advantage of this and therefore is opportunistic”, which means: ‘Okay so we aren’t going fabulously well but stick with us…’.
And an old chestnut: “In view of the disparity in size of the bidder and the company, it would seem that questions must arise as to how prudent the proposed financing arrangements for the offer are, and the consequent implications for the company's continuing businesses”, which means: ‘They are trying it on. Ignore them’.
While most partners move back and forth on the dance floor until they find their rhythm, sometimes there are occasions when relations and trust have deteriorated and it’s a slugfest between the proponents, Shakespeare comes into play and we watch scenes played out from Taming of the Shrew. And while there's not many couples of note at this stage at the present, these can be the most entertaining.
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