Most takeover bids successful
Three-quarters of offers for listed firms get green light, says report
More than threequarters of takeover bids for listed companies are successful, according to a new report.
Law firm Bell Gully examined 69 takeover offers for publicly-listed companies from July 2001 to May 2017.
It concluded that takeover offers which had board backing and a price that met or beat an independent adviser’s valuation, were almost always successful.
According to the report, released yesterday, 76 per cent of total takeover bids were successful while 95 per cent that had the backing of the targeted company’s board went ahead.
When the offer price was within or above the range determined by an independent adviser, 84 per cent succeeded.
When both the price was right and it had the backing of the board, 97 per cent of bids got the green light.
The report further found that of the 29 offers from overseas bidders requiring Overseas Investment Office approval, only one was rejected — the Canada Pension Plan Investment Board’s attempted takeover of Auckland Airport in 2008.
Foreign bidders made up 59 per cent of the total pool with 37 per cent coming from Australia, 22 per cent from Asia, 17 per cent North America and Europe, and 7 per cent from other countries.
“In a number of areas, this report confirms what market participants will instinctively suspect the position to be. However, the data also reveals some surprising statistics — such as the low number of contested take- overs and the significance of lock-up agreements,” the report says.
Lock-up agreements are a legal commitment by a shareholder to accept a takeover offer, usually prior to the public announcement of the bid, according to the governmentappointed Takeovers Panel.
The Bell Gully report found that in more than half of takeover offers the bidder had secured a lock-up from one or more major shareholder, the average stake “locked up” being 45 per cent.
“All of the takeover offers where a lock-up was obtained succeeded. Entry into a lock-up agreement appeared more likely to lead to success compared to having a pre-bid stake,” the report says.
It goes on to state that lock-ups may be why just 5 per cent of takeovers were contested by other bidders in New Zealand, compared with 17 per cent in Australia.
“Strong lock-up positions may be doing an effective job at dissuading potential rival bidders from making a competing offer.
“Unlike in Australia, where lockups cannot be obtained for more than 20 per cent of the target’s shares, a bidder in New Zealand can enter into binding commitments from target shareholders to accept the offer for any percentage of the target’s voting rights.”
According to Bell Gully’s data, takeovers peaked in 2007 when there were 10 worth $6 billion. Activity dropped dramatically during the global financial crisis but has since increased, with 2016 seeing three takeovers worth some $1.63b.
Bell Gully partner James Cooney said there was no clear-cut reason, including exchange rates and the stock index, why takeovers occurred more often some years than others.
Cooney says takeovers — local or foreign — are a positive thing. “A takeover is there to ensure that companies are being run efficiently and that there is an efficient market for control of companies, so it is an important mechanism.”