Thursday 24th August 2017
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We have had a number of takeover offers recently ( NZ Oil & Gas , Opus International etc. )
Takeovers have a number of issues for an Investor to consider.
The Takeover process normally works as follows:
• The buyer wishing to buy 20% or more of a listed company will make a Takeover Code compliant offer. This means that the offer must comply with the Takeover Code.
• The buyer can make an offer for a specific number e.g. 51% or 90% of a combination e.g. up to 70% but not less than 51%.
• The offer may have other conditions such as Regulators approval e.g. Overseas Investment Office, shareholder approval etc.
• The buyer often has a “lockup “ agreement with some shareholders who have already agreed to sell their shares into the offer. The parties that have entered the “lockup” agreement get exactly the same offer as those offered to other shareholders. The “lockup Agreement “ gives the buyer comfort that the offer will be successful because he already has some level of acceptance.
• The Company is obliged to provide information to the shareholders including an Independent Appraiser Report which sets out the offer and gives information and comment on the fairness of the offer.
• Once the Offer has been made equally to all shareholders they are free to accept or reject the offer.
Issues for a Shareholder to Consider
• Is the price fair to me ? If I don’t take this offer what will I get? This should not be confused with whether the buyer can gain more value. (e.g. because it can merge it with their company or the have another plan.
The first question is what will happen if I don’t take it ?
• If the offer is successful what is my position ?
If the offer is for less than 100% of the shareholder will probably be left with some shares.
• If the offer is for 51% and ALL shareholders accept, each shareholder will be left with 49% of their shares.
If you own 10,000 shares you will only sell 51% into the offer.
• If the offer is for 51% and 70% of the shareholders accept the offer, each shareholder will only sell 72.85% of their shares being (51/70 ) .The problem for shareholders is what to do with the shares they are left with i.e. 27.15% .The second issue is what will the market price be ?
• After the offer has been completed the price can soften, as a number of shareholders will have small holdings and they may wish to sell on market.
• Also, the “ takeover premium “often leaves the market as there are less buyers. Shareholders may get a fair price for the shares they sell into the offer, but they may find the balance they hold has less value. Sometimes the shares have more value but this is unusual.
• A shareholder can sell before the offer. They would normally do this if the market has risen so that the current price is higher than the combination price i.e. the price they get in the offer plus the price they will get for their remaining shares. We often find that shareholders think that it is easier to simply sell ALL of their shares on market at the higher price. This gives a guaranteed price and eliminates the issue of trying to sell the non- accepted shares.
• Shareholders should factor in uncertainty into each decision. There is the chance that conditions are not met and the offer is withdrawn. If this occurs then generally the price will return to pre-offer prices. If this happens generally the company will have been distracted for a period and management will not be focusing on the business. Trading results can generally be affected.
• All shareholders have the right to “ do nothing “ and see how the offer plays out.
• The only time that they can be forced to sell is if the buyer is offering to buy 100% of the shares and they achieve over 90%. In this case the buyer can generally require the shareholders to sell on the same terms as the Code Compliant offer was made. They can “compulsory acquire “ the last 9.9%.
The above information is a basic outline of the process.
It is not legal or financial advice and should not be treated as such.
The decision should be made by each shareholder with their own circumstances taken into account. We recommend shareholders to take advice from their Financial Adviser or other trusted adviser.
All shareholders know that the buyer has acted in their own best interest and generally is seeking to pay as little as possible.
Markets treat each offer differently as terms and conditions vary with each offer.
The above is for general information only.
No liability is accepted to any party for the above information. E&OE.
The only advice given is to seek advice appropriate for your circumstance.
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