PGHthoughts on a second bidThere is an important point about the...

PGHthoughts on a second bid

There is an important point about the prospect of a second bid by RG (after the statutory timegap) which I think hasn’t been raised in this forum recently.

SupposeRG lets this bid expire soon when he has got say 88%. Then he waits at least 4 months(although ASIC believes the law requires a 6 month gap) before announcing a secondbid to mop up the remainder. S 661A 1 of the CorporationsAct says that for him to be able to use the compulsory acquisition (CA) power ina second bid, he would have to reach not only 90% but also acquire at least 75%of the shares that he didn’t own at the start. With a starting point of 88% he wouldneed to acquire at least 75% x (100 -88) = 9% and thus reach 97%+, to beallowed to use CA.

The same double condition applies to the current bid but here it doesn’t matterfor RG. He started with 50% and thus had to reach 50% + 50% x75% = 87.5%, tosatisfy the rule, as well as exceeding 90%. Since he must pass 90%, the other (87.5%) leg of the rule is redundant. BUT in the case of a new bid, it would not be redundant: the “75% of remainder” rule would be a much tougher hurdle to meet than the 90% level. Thus if he lets the current bid expire at say 88%, and later rebids, holders with only 3.1% would be able to block CA by stopping him reaching 97%. That exposes him to “greenmail” risk, or paying a fair price, depending on one’s perspective!

Unless RG offered a much higher price in a second bid, my guess is thatthe current holdouts would continue to reject that bid thus denying himCA. That would cause him considerable inconvenience for restructuring the group debt and tax consolidations.

A second bid by a scheme of arrangement would also be likely to fail: notonly would RG need to have over 75% of the votes in favour but also hewould have to have over 50% of the voting shareholdersby number in favour. A couple of hundred small shareholders could scuttle that vote, even if they held under 1% combined. (There are rules against the bidder trying to split his holding to circumvent that law)

If I was RG I would be very concerned about these 2 possibilities, and Iwould therefore keep extending the current bid in the hope that I would just crawlover the 90% threshold now (where the 75% condition is redundant). My guess isthat RG is praying that he and his lawyers and the IBC can terrify and bulls*tthe holdouts so that he can get another 3.2%, even if takes him another 6 monthof extensions. Otherwise the outlook for him is very tough. He could of course bite the bullet and just make a second bid at a good price. He has already picked up 37% of the 50% that he didn’t own at a bargain price- so it would not be a major sacrifice for him to offer a really good piece in a few months’ time to shake out enough of the holdouts for 13%. Overall he would still have got a bargain. He could try to use the 3% creep rule in between but the commercial logic would remain the same. If he wants to mop up the holdouts he will have to offer a good price eventually, unless he succeeds in getting 4% more now by stringing it out for ages.

I strongly hope he loses. His bid and behaviour have been ruthless. Thebest antidote is for big holders like Manipur to be very public NOW about refusingto accept, and persuade nearly all of the holders not to sell. I posted earlier that I hoped that Manipur and other big holders would club together to buy a newspaper ad in AFR etc. to persuade holders not to sell It’s not enough to post on HC. A cheaper and more direct method would be for Manipur etc. to write (snail mail or email) to all holders to give this message. Of course it would help if this message was backed up by showing strong buy orders on ASX.

I am happy to be proved wrong. I am not a takeovers lawyer. I don’t wantto alarm people, but I think the minority need to be much more vocal. My concern is only to show that RG is likely to keep extending the bid in the hope that he eventually gets 90%, because for him there is little downside in that: whereas the alternative would block him from being able to refinance debt, and consolidate tax, from FY25, until he came back with a rebid at a good price which would probably cost him another say 48m shares x 50c = $24m. Chicken feed really but he has shown a very marked reluctance to pay up.

Not advice. DYOR.