DIRECTIONS IN PUBLIC MERGERS & ACQUISITIONS 2018 - Minter Ellison
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DIRECTIONS IN PUBLIC MERGERS & ACQUISITIONS 2018
Welcome to the
fifth edition of FY18 AT A GLANCE
MinterEllison's
Directions in Public DEAL VOLUME 51% 49% DEAL VOLUME
Mergers & Acquisitions FIRST HALF SECOND HALF 8% 19%
report, part of our BIDDER TYPE 78% 22%
annual Deals Trilogy. FOREIGN LOCAL
SCHEME / TAKEOVER 67% 33%
SCHEME TAKEOVER 19%
FRIENDLY / HOSTILE 84% 16%
FRIENDLY HOSTILE 54%
We are pleased to present our observations
ABOVE $1,000M
PREMIUM TRENDS
on trends in public mergers and acquisitions $500M - $1,000M
(M&A) in FY18 and our predictions for FY19. $100M - $500M
These are based on our analysis of ASX AVERAGE PREMIUM 46%
$50M - $100M
market data for the financial year ended 30 MEDIAN PREMIUM 37%
June 2018. Consistent with our approach last
year, the threshold we set for inclusion in this
report is announced deals with a value of
$A50 million or more.
DEAL BY INDUSTRY CONSIDERATION TYPE
37 deals met this threshold in FY18. The
majority of activity was in the mid-market,
11%
which we define as deals valued between COMMERCIAL SERVICES & SUPPLIES 3
$A50 million and $A500 million. 23 of the 37 METALS & MINING 10
deals in our sample qualified as mid-market. REAL ESTATE INVESTMENT TRUSTS 3
By contrast, there were only 7 ‘mega deals’, 16%
which we define as deals valued at more DIVERSIFIED FINANCIALS 1
than $A1 billion. REAL ESTATE 1
73%
TELECOMMUNICATIONS SERVICES 1
Our report:
• identifies 8 key M&A trends in FY18; CONSUMER SERVICES 1
• discusses the role played by key HEALTH CARE EQUIPMENT & SALES 2
Australian regulators; ENERGY 4
• makes 7 predictions for FY19;
HOUSEHOLD & PERSONAL PRODUCTS 1
and provides a list of sectors to watch.
SOFTWARE & SERVICES 2 CASH
MinterEllison played a central role advising CONSUMER DURABLES & APPAREL 1 SCRIP
on many of the M&A transactions profiled in
PHARMACEUTICALS & LIFE SCIENCES 4 CASH/SCRIP
this report. We trust that our report provides
some interesting perspectives and CAPITAL GOODS 2
is a useful resource for you. REAL ESTATE INVESTMENT TRUSTS (WFD) 1
2KEY M&A TRENDS IN FY18
1 2
Bidders are Auctions
prepared to for control
swing hard for are on
strategic assets the rise
Local and international markets have been volatile and impacted by geopolitical The number of auctions for control grew notably in FY18,
uncertainty for nearly a decade. Nonetheless, many companies in mature industries reversing the trend from the previous year. This is likely the result
pursued M&A strategies in FY18 to ‘buy growth’. These involved identifying the right of highly motivated acquirers appreciating the strategic value of
target and paying a healthy premium to access new regions, products or know-how. potential targets – and employing aggressive tactics to win:
EXAMPLE:
Offering substantial premiums: Guaranteeing certainty:
Mitsui & Co. won the auction A higher price is illusory if
for control of Australian Worldwide it cannot be delivered to target
Exploration (AWE) by considerably shareholders. Therefore, boards are
upping the ante following two also becoming more interested in
competing proposals – one from comparing the relative execution
CDH Investments and China Grand Pharmaceutical and
our client China Energy Reserve certainty of competing offers. This
Healthcare Holdings move to acquire Sirtex Medical Limited and Chemical Group, the other from requires them to assess funding
China has one of the world’s highest incidence of liver cancer. However, prevailing treatments have limited effectiveness,
Mineral Resources. Mitsui’s winning capacity, the level of conditionality
and Chinese patients have few treatment options. Our clients CDH Investments (CDH) and China Grand Pharmaceutical offer price of $0.95 per share was and the likely timing for satisfying
and Healthcare Holdings (CGP) saw significant potential to commercialise Sirtex Medical Limited’s liver cancer radiation 30 per cent above the initial offer conditions. A higher price alone
therapy in China. price that opened the auction, and may not be enough to succeed in an
15 per cent above the second offer auction for control, especially where
When CDH and CGP approached Sirtex in May 2018, its board had already endorsed a $28 per share offer from the recommended by the AWE board. a currently recommended offer is
US-based Varian Medical Systems. Sirtex shareholders were days away from holding a meeting to grant approval. largely unconditional and close to
To secure this strategic asset and displace the Sirtex board’s recommendation, CDH and CGP were prepared to pay completion.
$33.60 per share. This represented a compelling 112.9 per cent premium to the undisturbed three-month volume
weighted average price of Sirtex shares before Varian’s offer was first announced in January 2018. It also represented
a premium of 20 per cent on Varian’s offer price.
The trend in increased auctions for control is extending into FY19. MinterEllison
As an additional incentive, CDH and CGP agreed to pay Sirtex a potential $220 million reverse break fee if the deal was
is advising Hometown Australia, which is seeking control of residential park
not completed due to the failure of any regulatory conditions. This is the highest reverse break fee seen in the Australian
developer Gateway Lifestyle Group. The group was subject to an indicative,
market, being approximately 10 times the Sirtex break fee. The bidders agreed to pay it upfront as security, in case it
non-binding proposal from Brookfield Property Group. Ultimately our client’s
became payable, or as part-payment of the $1.9 billion purchase price if the deal was completed. They also agreed to
proposal was recommended.
deposit the balance of the purchase price ahead of the scheme meeting, as opposed to the conventional approach of
paying the full purchase price just before the implementation date. The deal successfully completed in September 2018.
3KEY M&A TRENDS IN FY18
3 MIXED SUCCESS OF
HOSTILE BIDS IN FY18
Bidders are
increasingly New tactics
prepared to in defending
go hostile hostile bids
Hostile takeovers were prominent in FY18,
continuing a trend from the previous year.
They occurred despite obvious execution Integral Diagnostics (Integral)
risks, including no access to due diligence
beyond publicly available information on
SUCCESSFUL DEFEATED recommended that its shareholders
reject a hostile takeover offer from
the target; the prospect of competing bids, Capitol Health Holdings (Capitol) to
and the lack of bidder deal protections that merge the two medical diagnostics
are an established feature of friendly deals. and imaging companies. As part of
Eastern Field Developments’ Our client China Energy
its response, Integral announced that
bid for Finders Resources: Reserve and Chemical
Overall, hostile bidders are showing an two of its executive directors had
The company had achieved 96 per cent Group’s bid for AWE:
increased willingness to opportunistically informed the board they would resign
control as at 25 September 2018; however, The bid was defeated by two
bypass boards and put offers directly to if Capitol acquired 50 per cent or more
this bid is ongoing as a result of Eastern subsequent superior friendly
target shareholders that are at an attractive of Integral. The directors were also
Field Developments seeking judicial review proposals – first from Mineral
premium to the prevailing market price. This employed as senior radiologists and
of a decision by the Takeovers Panel. Resources and then Mitsui & Co.
approach is more common where bidders one was the chair of Integral’s National
have a longstanding pre-existing stake in Clinical Leadership Committee.
Taurus Funds Management’s NextDC’s bid for Asia Pacific
the target or are otherwise very familiar with
bid for Realm Resources: Data Centre Group:
its business, reducing due diligence risks. This novel defence tactic will be
Taurus had to increase its offer price The bid was defeated by a
highly effective when a target relies
from $0.90 to $1.00 per share. Ultimately, subsequent superior friendly
Hostile bidders may wish to circumvent heavily on specialist employees whose
it undertook to pay an extra $0.35 cents proposal from 360 Capital Group.
target boards because their respective departure would reduce the target’s
to accepting shareholders as a result
views on value (and on an appropriate attractiveness. This is particularly
of Takeovers Panel proceedings. Realm Capitol Health Holdings’
premium for control) may be too far apart. relevant to listed health and other
successfully sought a declaration of bid for Integral Diagnostics:
Such engagement can be seen as futile and professional services companies
unacceptable circumstances on the basis Integral Diagnostics successfully
time-consuming. It also signals to the target that depend on human capital and
that Taurus’ bid was coercive. defended itself and the
board that a hostile bid may follow, giving it know-how.
bid lapsed.
valuable time to start preparing a defence.
Eramet’s bid for our client
It will also be more effective when
Mineral Deposits Limited:
In FY18, the Australian Securities and an offer contains a scrip component.
Mineral Deposits secured a unilateral
Investments Commission (ASIC), began to This is because shareholders will
20 per cent price increase from
clamp down on hostile bidders that issue be indirectly exposed to the target
Eramet, although the higher offer
self-serving public critiques of independent company if they accept – and the
was still below the independent
experts’ reports commissioned by targets relevant employee’s departure would
expert’s valuation range.
(see page 9 for more information). reduce the attractiveness of accepting
the offer and having an investment in
4 the merged entity.Private equity was a driving force in proposal from private equity or will
4 5
Australian public M&A in FY18 across reject it outright. Alternatively, the target
a wide range of industries. Deals board may grant due diligence access
announced by private equity bidders but no agreement is subsequently
accounted for 17.5 per cent of the total reached. BGH Capital’s proposal to
deal value in our sample (or 36.5 per acquire Healthscope was rejected by
Foreign bidders Private cent if Unibail Rodamco SE’s acquisition the Healthscope board, which didn’t
of Westfield is removed as a $21 billion grant access to due diligence. Harbour
continue to equity outlier). Many private equity firms are Energy’s proposal to acquire Santos
dominate interest is looking to acquire strategic assets was rejected by the Santos board after
surging – including intellectual property (IP) it granted access to due diligence.
– with untapped potential. In addition Bain Capital’s non-binding indicative
ahead to the example of Sirtex, Oaktree proposal for our client BWX, announced
The appetite for foreign investment in Australia remains strong. Capital acquired Billabong to combine in May 2018, also failed to develop into a
This is despite our relatively complex foreign investment regime. its brand portfolio with Oaktree’s formal proposal, after an extensive due
A reduction in Chinese bidders was more than compensated by portfolio of action sports brands, diligence period.
including Quiksilver and Roxy. Oaktree
new inbound investment from other jurisdictions.
has stated that it sees strategic value The high level of private equity interest
in this combination, despite different in ASX-listed companies should continue
brand identities (Billabong is stronger into FY19. This is partly because debt
in the US, whereas Quiksilver and Roxy funding remains cheap and private
perform better in Europe and maintain equity funds are actively seeking assets
United States: US bidders made up the vast majority of foreign bidders in FY18. US businesses
a strong snow sports presence in in which to invest their capital. We
continue to see relatively little sovereign risk in Australia. They also appreciate the strategic
addition to surfing). expect private equity firms to continue
positioning of Australian businesses in the Asia-Pacific region. This trend has been bolstered
driving high interest in healthcare and
by US-based private equity firms acquiring Australian companies.
Private equity also submitted many aged care services and utilities and
indicative proposals that failed to mature energy industries, particularly where
Canada: All Canadian inbound deals in our FY18 sample were in the mining and resources
into formal offers. Some target boards companies appear to be materially
sector. This is unsurprising given the relatively high dependence of the Australian and Canadian
decline to respond to an indicative undervalued or poorly performing.
economies on resources activity. Several Australian and Canadian junior miners merged, as they
sought to consolidate into larger, pure resource ventures. For example, Altona Mining and Copper
Mountain merged to focus on copper production, and Cobalt One and First Cobalt Corp merged
to focus on cobalt production.
BIDDER TARGET DEAL VALUE METHOD STATUS
Japan: The appetite of Japanese companies to use M&A activity to diversify into foreign markets is
likely being driven by pressure from shareholders to achieve higher returns on equity and growth CDH Investments and China Grand
following the introduction of Japan’s Corporate Governance Code in 2015. Another factor is the Pharmaceutical and Healthcare
combined effect of low interest rates, low population growth and a declining market of domestic Holdings Sirtex Medical Ltd $1.93bn Scheme Successful
consumers. Examples include:
360 Capital Group Asia Pacific Data Centre Group $224m Takeover Successful
KKR Pepper Group Ltd $675m Scheme Successful
PERSOL Holdings’ acquisition of Programmed Maintenance Services by scheme of arrangement. CITIC Capital Trilogy International Ltd $210m Scheme Successful
Oaktree Capital Management Billabong International Ltd $198m Scheme Successful
Taurus Funds Management Realm Resources $229m Takeover Successful
Mitsui & Co.’s acquisition of AWE by takeover bid.
Lone Star Funds Sino Gas & Energy Holdings Ltd $529m Scheme Successful
Blackstone Group Investa Office Fund Ltd $3.16bn Scheme Ongoing
LIFULL Co.’s current proposal to acquire Mitula Group Ltd by scheme of arrangement.
5KEY M&A TRENDS IN FY18
6 7
Schemes
Shareholder Shareholder activism is now an embedded risk that can still favoured
activism fundamentally impact the direction of public M&A transactions.
for friendly
continues Boards need to think ahead, be flexible when responding to
activist intervention and be prepared to adapt transaction
deals
to impact
deals terms. Some examples of shareholder activism in response to
publicly announced M&A transactions in FY18 include:
Institutional investors Institutional investors Industry competitors Friendly transactions represented 84 per cent (31 of 37) of our sample, and of these,
applying pressure on applying pressure on looking to torpedo publicly 77 per cent (24 of 31) were structured as schemes of arrangement. This trend is
bidders to increase their bidders to abandon their offer announced deals because they unsurprising because schemes offer certainty. If the target shareholders and the
offer – Ryder Capital and Adam – BESIX claimed that increasing perceive a strategic threat – court approve a scheme, 100 per cent control will pass to the acquirer by a fixed
Smith Asset Management held its holding in Watpac Ltd from Fortescue Metals Group acquired date. On the other hand, if the scheme fails, the target’s current ownership structure
approximately 15.35 per cent of 28.1 per cent to 64.1 per cent 15 per cent of the shares of Atlas continues. Schemes also require a lower shareholder approval threshold to achieve
the shares in Billabong. Critical via a scheme of arrangement Iron and obtained an economic full control, compared to the 90 per cent compulsory acquisition threshold for a
of Oaktree Capital’s offer price to would generate long-term interest in 4.9 per cent of Atlas takeover bid.
acquire Billabong, both refused value for shareholders. It Iron’s shares via cash-settled
to publicly state how they pledged to provide access to swaps. It did so about one month The benefits of schemes are especially attractive to private equity acquirers. In our
would vote in the lead-up to the other construction segments before a scheme meeting to sample, seven out of eight deals involving private equity bidders were structured
scheme meeting. Oaktree Capital and opportunities to diversify, approve Mineral Resources’ as schemes. We expect private equity bidders will continue to prefer schemes as a
ultimately increased its offer price as well as enhanced technical proposed acquisition of Atlas Iron method of structuring an acquisition, provided of course that a recommendation
from $1.00 to $1.05 per share capabilities. Sandon Capital, a under a scheme of arrangement. can be secured from the target board.
on the morning of the scheme Sydney-based activist investment Fortescue immediately issued a
meeting. firm that held a 3 per cent stake public statement that it did not
in Watpac, publicly campaigned intend to support the proposed
against the proposal. It stated scheme on its terms at that time
that it was unclear how BESIX (but reserved the right to do
would add value as it already had so). Fortescue appears to have
nominee directors on the Watpac strategically positioned itself to
board who were duty bound to gain access to Atlas Iron’s port
Boards need to add value for shareholders, and capacity at Port Hedland in
that the offer price materially Western Australia.
plan ahead, and undervalued Watpac. Ultimately,
must be flexible the scheme failed to achieve the
when responding requisite level of shareholder
support.
to activist
intervention.
6KEY M&A TRENDS IN FY18
CASH
8 REMAINS
KING
Cash consideration continued to reign supreme in FY18, accounting for 73 per cent of bids in our
sample. A likely contributing factor is the continuing low cost of debt funding due to historically low
interest rates. In addition, hostile bidders looking to make strategic acquisitions that were undervalued
did not offer their own scrip as consideration. Instead, they offered cash at a healthy premium to a
depressed share price to motivate shareholders to sell. For their part, foreign bidders recognised that
shareholders of an ASX-listed target much prefer to receive cash than scrip from a foreign bidder. This
is the case even if that scrip is listed on a well-known, reputable foreign securities exchange.
Several
schemes
NOTEWORTHY SCHEMES IN FY18
contained
novel and
‘Last-minute’ Obtaining warranty Shareholders given rare Using
interesting increase in scheme and indemnity opportunity to receive proportional
features, consideration insurance shares in foreign acquirer schemes
highlighting
the structuring When Oaktree Capital sought to disclosure (if any) was necessary. Pacific Equity Partners obtained the LIFULL Co’s proposed acquisition BESIX proposed a proportional
flexibility that acquire Billabong by scheme of Second, 78.8 per cent of the votes benefit of warranty and indemnity of Mitula Group was unique as scheme in which it would acquire
schemes arrangement, its decision to raise its cast in favour of the scheme were insurance as part of its acquisition target shareholders were given only 50 per cent of the Watpac
offer from $1.00 to $1.05 per share directed proxy votes lodged before of LifeHealthcare by scheme of the opportunity to elect to receive shares it did not own to increase
offer.
represented the first case of a bidder Oaktree increased the offer price. arrangement, which is uncommon shares in the Japanese company. its shareholding from 28.1 per
increasing its offer price immediately On this basis, the scheme would in public M&A transactions. Under This occurred despite the general cent to 64.1 per cent. Proportional
before the scheme meeting, have otherwise succeeded even at the scheme implementation recognition by foreign bidders that schemes are relatively uncommon
without delaying the meeting itself. the original (lower) offer price. agreement, LifeHealthcare gave the ‘cash is king’. The terms included a given that acquirers usually seek
The meeting was not adjourned acquirer both conventional ‘target’ share exchange ratio adjustment to full ownership. In this instance,
and Oaktree had not gained prior This case suggests that in certain scheme warranties, and target protect Mitula shareholders from BESIX considered that it would gain
approval from ASIC or the court. circumstances, bidders now have ‘business’ or ‘operational’ type falls in the value of LIFULL shares, a sufficient position in Watpac to
greater flexibility to make last- warranties. This second category and in the Yen–Australian dollar direct strategy to achieve long-term
The court ultimately held that minute price increases without of warranties were more extensive exchange rate prior to completion. value. Ultimately this scheme was
although the proposed amendment delaying the scheme timetable. than those usually seen in public This mechanism also allowed unsuccessful (for more information
was substantial, it was permissible However, ASIC has recently M&A transactions. It appears that Mitula shareholders to retain limited see page 6).
for the court to exercise its powers publicly commented that it does private equity and foreign acquirers amounts of any net increase in
to amend the terms of the scheme not support this approach – ASIC’s are increasingly looking to import the value of LIFULL shares before
to increase the consideration. First, stated preference is for the parties this feature into public M&A completion.
the amendment involved a clearly to notify ASIC first before publicly transactions in Australia.
defined increase in the amount of amending terms ahead of the
cash consideration being offered to scheme meeting, even if it is a
Billabong shareholders. This change simple increase to the cash
was so readily understandable that it amount being offered.
was difficult to see what further
7Telecommunications
Following significant consolidation
of the domestic industry in recent
years, the Australian Competition
and Consumer Commission (ACCC)
Metals and mining Real estate investment trusts has stated that it will closely
This sector led the way (as predicted last Local and foreign bidders drove M&A activity review any further M&A activity in
year), accounting for 10 deals out of our in this area. Mega deals included Unibail- this sector. This appears to have
sample of 37. Companies pursued M&A Rodamco’s record-breaking $21 billion contributed to an ongoing downturn
activity as a direct way to acquire proven acquisition of Westfield, and Blackstone’s $3 (noting, however, that TPG and
resources assets, rather than engage in billion proposed scheme for Investa Office Vodafone have recently announced
riskier and more expensive exploration Fund. Data centres are also being seen as an intention to merge).
activity. Examples included: high-value alternative real estate investments
given the growing importance of
• Moly Mines’ takeover cloud-based storage.
of Queensland Mining
Corporation
• Oz Minerals’ takeover
of Avanco Resources
INDUSTRY
• Mineral COLD
Resources’
proposed INDUSTRY SPOTS
HOT
acquisition
of Atlas Iron
(subsequently
withdrawn
following
Fortescue
SPOTS
Metals Group’s
intervention).
Consumer durables
Several junior mining and apparel
companies joined forces to Confidence in the Australian retail
pursue larger, pure resource sector was dented by several high
plays. Private equity also sought to Medical profile collapses in FY17, including
invest in small and mid-cap companies Activity in health care and adjacent industries Oroton, Herringbone, Rhodes &
where liquidity was tight or non-existent. By was driven by private equity companies looking Beckett and Maggie T. Amazon’s
entering at bargain prices, private equity saw for strategic acquisitions of defensive assets growing profile in the Australian
opportunities to maximise profit upon exit, for predictable cashflows. Companies also market and its plans to release
such as when projects were commissioned. A pursued ‘bolt-on’ acquisitions of companies private-label products may have
good example is Taurus Funds Management’s holding strategic IP and know-how, particularly also dampened M&A activity.
proposal to acquire Realm Resources, which relating to cancer treatment. Examples included
now looks likely to succeed. Before the offer, US pharmaceutical company Merck Sharp &
Realm Resources’ shares had not been traded Dohme’s acquisition of cancer immunotherapy M&A activity in telecommunications and retail in FY18 was
since July 2017. Taurus ultimately offered a firm Viralytics and the attempt by radiation largely limited to reconstructions of financially troubled
very modest premium of 9.8 per cent. oncology treatment and software maker companies, including ‘loan to own’ transactions and
Varian to acquire Sirtex. opportunistic bidders seeking value. We think
8 this trend will continue.REGULATORY LANDSCAPE
Australian Securities & Foreign Investment Australian Competition
Investment Commission Review Board & Consumer Commission
In FY18, ASIC has clamped down on hostile bidders Australia’s foreign investment review such as requiring mandatory open The ACCC completed public reviews of 26 M&A
delivering a subjective, self-serving critique of independent regime was overhauled in December advertising periods for targets that have transactions in FY18. Of these, 16 were cleared in Phase 1,
expert reports commissioned by targets. This is irrespective 2015. This resulted in increased cost and agricultural land interests in Australia. without issuing a Statement of Issues (SOI). The ACCC also
complexity for cross-border transactions. Australia’s foreign investment regime pre-assessed a significantly larger number of other M&A
of whether that critique comes from the hostile bidder
As a result, foreign bidders are not is also being used as a tool to review transactions, either confidentially or with targeted market
or an ostensibly ‘objective’ party that the bidder engages.
on a level playing field with domestic tax structuring issues that concern the inquiries. In real terms, the average period of review was
ASIC’s concern is that if a bidder publicly expresses a view bidders, because they cannot be sure of Australian Government, such as stapled 97 days for transactions where no SOI was issued, and 180
about what the target’s independent expert could or should when – or if – they will receive Foreign structures, transfer pricing and related- days for transactions where an SOI was issued.
have concluded, it could mislead target shareholders. This Investment Review Board (FIRB) approval. party financing. The Government’s
is due to the bidder not having access to the information concern has been emphasised by the This year, the ACCC made several notable changes
gained by the target’s independent expert. Since these changes, an increasing additional detail companies are required to its review procedures. These include:
number of global foreign-to-foreign to provide upfront to FIRB on the source
In addition, ASIC remains concerned about the timetabling offshore transactions have been caught of funds, structuring and impact on Reforms to merger clearance processes: Following
of scheme transactions that are subject to regulatory by Australia’s foreign investment regime. specific tax issues. reforms to the Competition and Consumer Act in late
This affects the timing for completion of 2017, there are now two clearance mechanisms: informal
approvals or other conditions where there is significant
global deals as well as the scrutiny that Despite these complexities, Australia’s clearance and authorisation. The ACCC will now decide
uncertainty. ASIC says that reasonably foreseeable delays
deals will face from Australian regulators. approach to foreign investment is authorisation applications, with a right of appeal to the
should be factored into scheme timeframes to avoid FIRB is increasingly working with other now being seen as a model for other Australian Competition Tribunal. The ACCC can consider
unnecessary supplementary or piecemeal disclosures. regulators, who now play a greater role jurisdictions. For example, the UK is both competition issues and public benefit arguments,
in the consultation process (for example, considering allowing intervention on the first time these have been combined under one
the Australian Competition and Consumer certain foreign investments, including merger process.
Commission, Australian Taxation Office on national security grounds. There has
and the Critical Infrastructure Centre). been an increase in scrutiny on deals from Increased information demands: The ACCC is increasing
EXAMPLE: the Committee on Foreign Investment in its use of statutory information-gathering powers. While
There were also many policy the United States. New Zealand recently this will help it litigate to prevent anti-competitive mergers,
announcements over FY18 to tackle amended its laws to prevent foreign it adds time and uncertainty to merger review timelines.
Mineral perceived issues with foreign investment, investment in certain sectors. For example, the ACCC issued 89 section 155 notices
Deposits in FY18, compared with 44 last year. This includes notices
requiring attendance at oral examinations which enable
the ACCC to question executives of the merger parties
In April 2018, Mineral Deposits Limited (Mineral
under oath.
Deposits) was the subject on an unsolicited off-
market takeover bid from its 50 per cent joint venture
Takeovers Panel
Action against ‘gun-jumping’ conduct: ‘Gun jumping’
partner, Eramet SA (Eramet). As part of its takeover
In July 2018, the Takeovers Panel The guidance is currently limited to ‘no occurs when merger or acquisition parties are competitors
defence, Mineral Deposits engaged Grant Samuel
provided guidance on how long a increase statements’ and not to other types and they cease to compete (or otherwise coordinate)
to prepare an independent expert’s report. Grant
bidder must wait before making a of ‘last and final statements’, including before the transaction is complete. This year, the ACCC
Samuel concluded that Eramet’s takeover offer was
second takeover bid for a target. ‘no extension statements’ and ‘no waiver challenged provisions of an asset sale agreement as part of
‘neither fair nor reasonable’. In its Third Supplementary
The Panel says that unacceptable statements’. Further, it remains to be seen civil proceedings against Cryosite. This included a clause
Bidder’s Statement, Eramet criticised Grant Samuel’s
circumstances are likely to arise if, after what will sufficiently constitute a clear requiring Cryosite to refer all customer enquiries to Cell Care
report, including its valuation assumptions. Following
making a ‘no increase’ price statement qualification to the no increase statement. after signing but prior to completion. The ACCC alleges this
an intervention by ASIC, Eramet released a corrective
without clear qualification, the bidder Bidders will need to take this latest Panel constitutes cartel conduct, by allegedly allocating potential
disclosure effectively withdrawing and qualifying its
announces another bid (or a scheme) guidance into account before making any customers from Cryosite to Cell Care and effectively
criticism of Grant Samuel’s report.
within four months of the bid closing last and final statement, but particularly restricting the supply of Cryosite’s services to new customers.
and offers increased consideration. when making a no increase statement.
97 PREDICTIONS FOR FY19
1. 2. 3. 4. 5. 6. 7.
Growth by Opportunism Private equity Foreign Reverse Requests for Shareholder
acquisition will remain a will continue outbound break an upfront activism will
will continue: key driver: to be a major Japanese fees will deposit continue:
Achieving organic Bidders will continue player: investment be used will increase: This is likely where
growth is likely to to move quickly to take industry competitors
remain difficult in many advantage of quality
It will continue to drive will continue: more often Australian targets will
look to torpedo or
bids for ASX-listed increasingly request
mature industries. targets whose share companies.
Over the next 12 in ‘friendly’ an upfront deposit otherwise influence
months, we believe
prices are depressed
or languishing. Hostile Japanese bidders will deals: from overseas bidders deals and where
institutional investors
These fees are as security for the
bids will remain popular continue their strong seek to extract the
potentially payable payment by the bidder
despite their execution run in Australian maximum possible
by the bidder to the of any reverse break fee.
risks. public M&A deals. This price from acquirers.
target if the deal fails, If the deal successfully
activity is likely to
We expect bidders will completes, the upfront
centre on mid-market
increasingly be prepared deposit forms part of
transactions, and in
to agree to reverse the purchase price.
sectors such as robotics
and IT, where Japanese break fees that are
companies can add substantially higher than
value through their any break fee potentially
unique strengths. payable by the target
to the bidder (for
example, in the event
of a board changing
its recommendation).
Larger reverse break fees
are likely to become an
important negotiation
mechanism, particularly
where a bidder is
a foreign bidder or
latecomer to an auction
for control.
10SECTORS TO WATCH
Health Food, Banking &
& aged Beverages Financial Information Mining &
care & Tobacco Retail services Technology Telecomm Minerals
The ageing population It is likely that private Retailers coming to terms Banks can be expected to Industry participants will The ACCC will closely The consolidation of
is driving increased equity acquirers will with a rapidly changing sell or demerge non-core look to consolidate in the scrutinise future M&A junior and mid-cap
demand for services. continue to take on landscape and Australian wealth management, software and services, and activity in this sector companies is likely to
complementary food consumers’ growing superannuation and technology hardware and due to a high level of continue.
The industry is
and beverage products awareness of Amazon are insurance assets. equipment subsectors. consolidation. This will
consolidating as
in portfolio-building likely to dampen public dull appetite among
businesses seek to reduce Increasing consumer
exercises. M&A activity in the sector. industry players, although
costs, drive efficiencies adoption of Internet
private equity may
and reduce their Continued Asian interest Activity will mainly involve of Things devices, and
continue to seek smaller
regulatory burden. in Australian fine meats opportunistic bidders commercial use of drones
defensive assets. This
and dairy will also drive looking for targets in and robotics is likely
Private equity will sector has heated up in
activity. distress. to spur more bolt-on
continue to look to this new financial year
acquisitions.
healthcare businesses with the proposed merger
for defensive assets with of TPG and Vodafone.
steady cash flow. This is a multi-billion
dollar transaction that
would create the
industry’s third largest
player after Telstra and
Optus.
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