Opinion & Analysis
Takeover raiders learnt a sharp lesson when Singapore-based Cerebos Greggs made a hostile opportunistic $2.50-a-share takeover bid for Comvita, the manuka honey company, late last year.
Ignoring a stream of abuse, Comvita, under chairman Neil Craig, fought back, arguing that the bid seriously undervalued the company. Shareholders will be delighted that Craig won: a subsequent run of good news and a big jump in earnings has made Comvita's profits and share price soar. It was trading at an all-time high of about $3.95 on Friday.
Although Cerebos Greggs spotted a bargain, its takeover strategies went haywire. It not only lacked a sizeable stake in the company but seriously underestimated Craig, the canny sharebroker who helped build the national investment partnership that bears his name.
Since then - and to give their bids the best shot of success - intending marauders have done their homework, including hiring spin doctors. But they first hold private talks with major shareholders to try to get them to commit themselves to the offer before advising other shareholders.
Takeovers of this type - termed lockups - are new here. They seem counter to a transparent market where all shareholders are treated similarly and have access to the same information.
While secret squirrel deals are being negotiated, some shareholders will sell, missing a higher price. These are not too different to past arrangements when intending bidders approached big institutions to see if they would sell - and at what price. In these arrangements, the institutions protected themselves by signing agreements containing escalation clauses. If a higher counter offer appeared, everyone benefited.
Lockup agreements - which don't appear to contain escalation clauses - are features of the Chinese Haier's bid for Fisher & Paykel Appliances and Austron's bid for the former Wakefield Hospital (which now carries the meaningless, dreadful and totally forgettable name, Acurity: what was wrong with Wakefield?).
That we are seeing takeovers at all in this market is positive. It reflects that - little noticed by many people - the New Zealand Stock Exchange is in robust health. About 56 companies traded at 12-month highs on the NZX last week. The downside is that the NZX can't really afford to lose any more good companies.
Happily, Acurity will stay listed. Austron, the company formed to secure a controlling stake has achieved its 50.01 per cent target (It reached 61.4 per cent and scaled back acceptances). Although Haier wants 100 per cent, it says it will keep F&P Appliances listed if it fails to reach this target.
Before its bid, Austron, a joint venture between Mark Stewart, of Christchurch, and Hawke's Bay's Royston Hospital, had a combined 40 per cent. To ensure success, it made a most unusual agreement with AMP Capital Investors, which had 15.71 per cent.
AMP agreed to sell 5 per cent: and as many more shares as necessary to ensure Austron reached its target.
AMP's reasoning isn't clear. Although Austron claimed its offer was generous, it wasn't. To get the valuable controlling stake it offered $6, a meagre $1.15 above that offered in Wakefield's recent cash issue. This was also lower than the $6.92 to $7.88 valuation in the directors' independent appraisal report.
AMP's involvement possibly encouraged some shareholders to sell, assuming the share price would subsequently wilt. So far it hasn't: it was $5.90 on Friday. Speculation is that giant Aussie hospital group Ramsay Health might bid at some stage.
Haier, which has 20 per cent, approached three large institutional shareholders before announcing its F&P Appliances bid, including ACC and AMP. It won the hand of the second biggest shareholder, a company virtually unknown in New Zealand, the Australian offshoot of a South African-British company.
Allan Gray Australia's stated purpose is to “invest in companies whose share price is much lower than its underlying value suggests it should be . . . based on a company's long term business fundamentals.”
Allan Gray's website does not list its investments. Most hadn't noticed it had built up a 17.46 per cent stake under the name Orbis. Its decision to sell gives Haier a good start with a combined 37.6 per cent: although there is speculation that Haier might have to raise its offer with talk that rivals Bosch, Whirlpool and Electrolux are sniffing around.
It isn't difficult to see why Simon Marais, the Australian boss of Allan Gray, jumped at the Haier offer. He must be sitting on a huge profit as he had amassed a holding of 125.7 million shares, some of which he possibly accumulated as low as 33 cents in December.
There will be regrets if F&P Appliances disappears from the NZX. It is one of our oldest companies, although its former subsidiary, Healthcare, will remain. Its shareholders have had a turbulent time of late, with the share price well down on an adjusted $3.42 in 2006.
It got into strife in 2009 over high debt after massive overseas expansion coincided with the global finance crisis. This introduced Haier to the company.
Shareholders who took part in the massive one-for-one cash issue at 41c in 2009 should be happy. F&P Appliances' share price has been rising sharply since the highly optimistic tone at last month's annual meeting.
- © Fairfax NZ News