Wesfarmers has lifted the number of potential takeover targets under consideration to about 20, but chairman Michael Chaney says the board will steer clear of making hostile takeovers.
Chaney says the sharp fall in share prices this year could make on-market acquisitions viable, adding that the Perth-based conglomerate, which owns household brands such as Bunnings and Kmart, is open to acquiring companies across a range of sectors.
The only industries Chaney rules out are tobacco and gambling.
"We've got, I think, a huge advantage as a conglomerate of being able to look at opportunities across the board. We think about sectors and what sectors might be worth being in, in due course, and evaluate a whole lot of different possibilities," Chaney tells
AFR BOSS.
So far this year Wesfarmers has raised $2.2 billion by selling two-thirds of its 15 per cent holding in Coles. It is expected to sell its remaining stake in the supermarket chain in the coming months, potentially raising another $1 billion. Normally, each month the board discusses an "activity report" that comprises between 12 and 15 items, most of which are potential takeover targets. That number is now closer to 20.
But Chaney says the conglomerate wants to avoid acrimonious takeover battles.
"We're not really interested [in acquisitions] in a predatory sort of way. We think there may be opportunities out there where companies need assistance and would welcome a partner, and sometimes another owner," he says.
Chaney adds he was surprised by the fierce reaction to Wesfarmers' $1.5 billion takeover bid for rare earths miner Lynas last year.Wesfarmers finally dropped the bid last August, but not before it was heavily criticised by Lynas shareholders over what they perceived as interference in the Lynas licence-renewal process in Malaysia. A highly public stoush ensued.
The Wesfarmers board was clearly taken aback.
"We shook our heads a bit over the reactions there," Chaney says. "We were never intending to be predatory.
"We talked to the company about what we thought would be a good idea, that is: 'Why don't you come under the Wesfarmers wing? You'll have access to capital and our expertise in the chemicals business, and so on, and our facilities down at Kwinana [near Perth in WA] if you want to build another facility.'
"They reacted in a most unexpected way, in sort of [an] outrage. Frankly, we were never interested in doing it in an aggressive way. We said: 'We're very happy to come and talk to you, and here are the terms on which we'd do it.'
"If they just called us and said: 'Forget it,' we would have gone and done something else," Chaney says.
The former chairman of National Australia Bank and Woodside Energy points to the hazards in making a success of public takeovers, but he is hopeful the sharp decline in share prices over the past few months will make them more palatable.
"Making public takeovers is so difficult and complex, and often expensive. You'd say it's rare that they make money, but discontinuities [in markets] do occur, and we're living through a discontinuity now, which may open up some opportunities to make an on-market takeover that works.
"The record shows that [usually] on-market takeovers are rarely profitable. The reason is that everyone expects you to pay a 30 per cent premium above what the market values the company at. As soon as you acquire the company on that basis, the 30 per cent disappears," Chaney says.
He also points to the difficulties in timing acquisitions.
"[The market] has gone up about 10 per cent in the last month. You don't know whether this is the dead cat bounce or the recovery. It'd be very handy if you did know," Chaney says. "Some [companies] may never be priced as low as they are today, but on the other hand they may end up being priced quite a bit lower. It will vary from industry to industry, I think."
Macquarie Group has identified 38 potential targets that might be attractive to Wesfarmers, including JB Hi-Fi, Flight Centre, Bega Cheese, Blackmores, poultry producer Inghams and funeral company InvoCare in the consumer area, Mineral Resources, cement group Adelaide Brighton and engineering group Monadelphous in the resources sector, and fund managers Perpetual and Platinum Asset Management
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