As a New Zealander, I find the Ausy (or at least the WCL) way of...

As a New Zealander, I find the Ausy (or at least the WCL) way of conducting a takeover as being very strange.

Let me explain my comment:

In New Zealand what will generally happen in a takeover situation is that the suitor will approach the Board of the target company and say I am interested in taking you over. Generally at this point either the approach will be welcomed by the Board (“friendly” takeover) or not (“hostile” takeover). If the takeover is friendly, the suitor may be granted access to due diligence materials to improve their understanding of the company (which the Board will hope will improve the price paid for the company).

The suitor will then generally go away work up its offer price, establish its funding lines and gain any necessary internal approvals for the acquisition which it requires. If there are large shareholdings in the target company which are critical to the success of the takeover, then the suitor may enter in negotiations with the owners of those shareholders to “lock-up” those shareholders (i.e. agreements to sell into the forthcoming takeover offer). Then the suitor will present its first takeover offer to the company which will be immediately released to the market.

At this point the non-independent directors bow out of the process and the independents take over. The independents will usually announce to the target’s shareholders a “don’t sell” notice pending an independent appraisal of the takeover offer. The independent directors will then appoint a respected consultancy firm to assess the value of the target (usually expressed as a value range). If the takeover price falls within the value range, then the independent directors will usually come out with a statement supporting the offer and suggesting that the target’s shareholders should accept the offer and the takeover is usually successful. If the takeover price is below the value range, then the independent directors will usually maintain their “don’t sell” position until either the suitor goes away, is successful regardless or increases their offer price.

Hopefully now you can understand why I am confused about the WCL process. It appears to me that after a very protracted period of due diligence (which now appears to have ended) the Board are in the process of negotiating a price with the suitor which is acceptable to the Board. It’s this last bit that gets me. In the “NZ” process explained above, it is not the Board’s role to decide whether a bid is suitable or not. Sure, they can have discussions with the suitor and say “look, we don’t think your bid will get across the line”, but at the end of the day it’s the shareholder’s decision, as usually informed by the independent appraisal report (at least for small shareholders).

Now in WCL’s situation, it had several large shareholders which are key to any takeover bid’s success. I would have thought that any suitor would have been talking to these shareholders to firstly understand if an agreement on price can be reached and secondly whether a lock-up agreement can be reached. Once these discussions have been held any suitor can then proceed (or not) with a formal takeover offer.

I therefore question what the WCL Board are now doing. I believe that the Board seeking an acceptable price is not appropriate. Ultimately, the decision regarding whether a price is acceptable is one for the shareholders, who will ultimately vote by selling their shares (or not). I certainly have not been polled by the company on what I believe is an acceptable price so I cannot believe that the Board understands shareholder expectations on price which in turn informs whether any takeover can be successful or not. Nor has the Board (to my knowledge) received an independent appraisal report on the value of the company to inform its discussions.

In my opinion it would appear that the Board are negotiating a price which is acceptable to WCL’s largest shareholders. Again, I believe this is inappropriate. This should be up to those large shareholders manage these discussions directly. What will happen if the Board does negotiate a price which is acceptable (to the Board) and informs the market of such. The implication is that the Board supports such a price, but if the independent appraisal report comes back and says that the offer is not fair, then what does the Board do then?

The whole process seems bizarre to me. Maybe somebody from the lucky country can explain it all to me as with my own limited kiwi experience with takeovers I can’t make head or tail of this process.


In other matters, somebody here commented a couple of weeks ago that they believed that WCL will have a GSA ‘backup’ in place should the takeover bid fall away. While WCL may have had some preliminary discussions with some parties, I don’t believe that there is a GSA waiting in the wings to be inked. The reason for this is I believe that it is highly unlikely that any counterparty will expend any serious time and effort on negotiating a GSA with WCL given that WCL will only sign it if the takeover bid falls away and that a takeover has a reasonable chance of happening. I believe the cupboard is bare in this instance, and this is another reason why I have always believed that WCL should have had a firm timeline on the takeover process. Walking away from discussions does not preclude the suitor making a bid at a later date but it does free up management to negotiate a GSA on a good faith basis.

Watching in the West
Coaster

P.S. Is it the 12 month anniversary of this process yet?