1 Even more energy and resources M&A
We can see no abatement in the significant levels of M&A activity in the resources, energy, mining sector in 2010. This will continue to drive activity levels for the Australian economy, not to mention M&A practitioners. Consolidation is anticipated to continue across a range of minerals and metals, including coal, gold, copper and CSG, both for producing targets and exploration targets.
We expect to see continued foreign investment in the sector with Chinese, Canadian and Japanese acquirers being most prominent. We also forecast the increase of Indian investment, particularly in the coal sector, as India’s rapidly growing economy increases its need for power projects and inputs for those projects.
2 2010: the year of the regulator
In March 2010, the Takeovers Panel will celebrate 10 years since its revamp in 2000. We expect to see the occasion marked by reflection on the Panel’s impact on M&A practice and possible further policy development. Relevant topics could include reverse takeovers, independent experts’ reports and possibly pre-bid and truth in takeover statements.
We also forecast a continued push by the Panel for faster decisions—this may include procedural changes to further reduce the formality of proceedings and continued support for shorter reasons for decisions and shorter guidance notes. Apart from the Takeovers Panel, we anticipate that every regulator will continue their increased vigilance as we continue to live in interesting times.
This may include:
- ACCC – continuing to take a more and more inquisitive role on mergers and acquisitions. • FIRB – clarifications and further pronouncements of their policies can be expected. Foreign government and SWF investment in Australia will continue to be closely scrutinised.
- ATO – continuing its recent scrutiny of foreign private equity exits.
- ASIC – got into the act early with their December release of a revised Regulatory Guide 60 on schemes of arrangement. We expect ASIC to continue their increased vigilance on schemes of arrangement. Separately, the CAMAC’s final report on schemes is due out soon—we foresee the long overdue process of updating and refining the scheme provisions in the Corporations Act will finally get underway.
3 Cross-borders, both ways
As mentioned above, we look forward to continued foreign investment in the resources sector by Chinese, Canadian, Japanese and Indian acquirers. We see this also occurring in other sectors as well.
As the Freehills 2009 Public M&A report showed, all 7 M&A transaction over $1 billion in the 2009 financial year involved foreign bidders (from China, Japan, US, UK and Canada). We expect more of the same in 2010.
Separately, we see a golden opportunity for strong Australian companies—who have benefited from the relative strength of the Australian economy (and equity markets) and the Australian dollar—to make strategic foreign acquisitions in 2010. This is especially the case as the European and North American economies (and rivals based in those economies) take more time to emerge from the GFC.
4 Manoeuvring in public: joint bids and statements of support
We expect to see more public fencing and foxing in public company transactions. This is particularly the case as stock markets are still to rebound to the heady days of 2007. In this context, target directors may be unwilling sellers at prices they consider to be below full value and therefore reluctant to engage. They may need some public ‘encouragement’ before they recommend bids. Yet at the same time, many bidders remain cautious and prefer not to make full blown hostile bids without some public encouragement of their own.
We see this as having two effects.
First, we anticipate more take private transactions by major shareholders in cooperation with other shareholders and/or other parties, that is, joint bids. This month has seen two significant proposals being put to targets by way of joint bid. In both the AXA and Transurban proposals, potential acquirers join forces or cooperate to maximise the prospects of their proposed bids succeeding. Watch for more of this in 2010 as acquirers seek to increase the prospects of success, and mitigate the risk, of significant M&A deals by teaming with a partner.
Secondly, we expect to see more reliance on public statements of support by shareholders for bids and proposed bids. This happens where, for example, a bidder acquires a pre-bid stake, announces a bid and also states that a further large proportion of shareholders have indicated that they will accept the relevant bid within a short, specified timeframe unless a higher bid emerges. The shareholders themselves may publicly confirm these statements and so bring themselves within ASIC’s ‘Truth in Takeovers’ policy.
The increased use of such statements is, in part, to avoid the operation of the 20 per cent rule which limits firm commitments pre-bid to 20 per cent.
Some may say that this developing practice is in effect a ‘synthetic’ mandatory bid rule. Nevertheless, bidders may need or want such public affirmation before they publicly commit to proceeding. At the same time, they will need to ensure they do not overstep the mark and have an agreement or understanding such as would breach the 20 per cent rule.
Another sector we tip to be ripe for M&A in 2010 is infrastructure.
There are a number of proposed privatisations, including Queensland Motorways Limited, Port of Brisbane Corporation, Forest Plantations Queensland, Queensland Rail’s coal business, NSW power.
Separately, energy projects, such as the race to build LNG plants in Gladstone, may result in M&A consolidation activity.
On roads, we already have the Canadian proposal for Transurban, as well as the Macquarie Infrastructure Group proposal.
Then we also have the Federal Government’s plans for the telecommunication sector, including the prospect of legislation for Telstra and the NBN project.