It is difficult to speculate on takeovers and it's something I try to avoid doing simply because, with the best will in the world, it's so easy to get wrong.
Sometimes you think a company is a million miles away from being taken over then whammo... trading halt, formal announcement, bidders statement, directors acceptance, shareholders become millionaires and the rest is history.
I gave up trying to predict the stock market years ago. Mr Market is a bipolar partner - exuberance one day, despair the next.
Clients holding shares under a custodian agreement is very common practice and it would be hard to read anything into this. The Corporations Act is clear on substantial holdings and the custodians are well aware of the rules. The question often arises as to whether the share holders fully understand the rules though and recent cases of CNPSA on CNP and Nick Bolton on MMA are examples of this. I do believe though that between the holder, custodian (if any), target company, advisors and ASX these things tend to get resolved.
In the absence of information to the contrary, we have to assume everyone is playing by the rules with CNP - i.e. there have been no new 5% holdings and no 1% increase from existing substantial holders.
Having said this though, there are numerous other mechanisms available to suitors wishing to amass a covert stake in CNP or any other company. These range from holding derivative positions (although strictly speaking these need to be disclosed) such as OTC options or swaps through to informal agreements with selected existing holders. All of these can be arranged by your local top-tier investment bank if you have the appetite and money.
As I see it, with the debt stabilisation complete, there are a number of possible outcomes but the short-list is probably as follows:
1. Company does nothing and trades out of the current situation. I am all for this as it's a no-brainer, holds little risk and will return significant value to shareholders over time. Short-term traders hate it, we love it. All management have to do is focus on running the assets effectively, which after all is what they are good at.
2. Divestment of US operations or some form of breakup. This is our current working hypothesis as to what might happen. It is exceptionally complex (due mainly to debt structures) and presents major risks for company and shareholders. On the plus side, it could be quick and decisive and would allow shareholders to value what remains easily. See GPT and VPG as examples of two models which could be used.
3. Capital raising. If the CNP SP keeps going up, this is a distinct possibility but the raising would need to be huge and it's questionable as to whether:
a) shareholders would participate at THIS POINT in the cycle. They may in a few months time when commercial property values rise noticeably.
b) it could be underwritten by an investment bank at a fair and reasonable price
SP is affected by fundamentals but in many ways fundamentals are also affected by SP. See Relexivity theory by George Soros.
4. Takeover or merger. The question here is what value a suitor would see (looking forward), how much they would pay for it and at what point in the cycle. Is it too early for a major corporate to make acquisitions (ANZ and others don't seem to think so) or just the right time for an opportunist?
At the risk of stating the bleedin' obvious though, in my experience (using CER as an example) companies with $6bn of assets generating $185m in operating profits at the point where the real estate valuation cycle looks to be turning upwards don't stay at a market cap of $440m for long.
Something good usually happens.
CER Price at posting:
19.0¢ Sentiment: Buy Disclosure: Held
