As in previous years, schemes were the structure of
choice for mega-deals (over $1 billion), while the lower end of the
market clearly preferred takeovers. Interestingly, 5 of the 23
takeovers in 2015 were on-market bids – a significant
increase from previous years. Bidders generally prefer off-market
takeovers if their purpose is to achieve total or majority control.
However, on-market bids can be a useful structure for bidders to
quickly increase their stake in the target, even without a target
Takeover bids were back in favour in 2015, with around 60% of
deals in our sample proceeding by takeover and 40% by scheme.
However, there was a clear preference for schemes in the mega-deals
space, with 80% of deals over $1 billion proceeding by way of
scheme (noting the interesting tactic of Brookfield in having both
a takeover and scheme on foot in its quest for Asciano).
flexibility to increase price, among others). Matching deal
structure to a particular transaction is what will influence
success – that is, transactions better suited to bids will
not necessarily succeed as schemes – and vice versa.
One aspect of deal structure that was notable in 2015 was the
increased use of on-market takeover bids.
On-market bids require the bidder to appoint a broker to acquire
shares on-market on an unconditional basis. This structure has
traditionally not been favoured by bidders given concerns that such
unconditional bid structures could result in the bidder not
acquiring the 90% interest needed to proceed to compulsory
acquisition or not even reaching 50% to ensure control. 2015 saw
five on-market bids (up from two in 2014) and if achieving a 50% or
90% acceptance level is important, these bids demonstrate that such
concerns are well founded.
In four of these on-market bids, the bidder did not succeed in
acquiring even 50% of the target and in the case of G8's
on-market bid (which it launched concurrently with a scrip
off-market bid), G8 did not acquire even one share under this
structure. The exception was Auctus Chillagoe's 100%
acquisition of Atherton Resources. However, the Auctus Chillagoe
takeover could be considered an anomaly as it was Auctus
Chillagoe's third bid for the target, it was priced at a
significant premium (45%) and had the support of two shareholders
which were in liquidation and which held 63.12% of the target's
shares. The board recommendation that came with this bid was also
predicated on the two shareholders selling into the bid, indicating
the influence that these shareholders had on the outcome.
On-market bids can be attractive from a timing perspective as
they allow a bidder to acquire target shares on-market immediately
following the announcement of the takeover. While none of the other
on-market takeovers were recommended by the target board and no
other bidders were able to obtain a controlling interest through
this structure, all of these bids (other than G8 Education's
on-market bid for Affinity*) resulted in the bidder increasing its
interest in the target from between 17% and 20% to between 46% and
48% in six to seven weeks.
In such circumstances, a failure to obtain a target board
recommendation may not be a major obstacle for a bidder for whom
success means something less than a 100% or even a 50%
shareholding. An interest of 46% or more in a widely-held listed
company will usually deliver effective control to the bidder given
the voting turnout rate at an ASX-listed company shareholder
meetings is often under 60%. Obtaining a holding of approximately
46% also puts the bidder in a good position to use the 3% creep
provisions to get to 50% in the next 6 to 12 months, or to use this
position to launch a further control transaction in the future.
Accordingly, while an on-market bid will never be appropriate
for bidders with regulatory conditions or a need to guarantee
control and consolidation, it can be an effective structure where
the bidder does not have a board recommendation and is looking to
increase its shareholding above 20%.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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