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Takeover offer is on the table, what should I do?



WHAT TO DO: Paul Zwi | May 06, 2009
Article from: The Australian

The company in which I own shares has received a takeover offer. What general advice should I follow?

Be informed of all developments by reading any information that the company sends you and keep looking at the company's website for announcements relating to thetakeover.

During a takeover, you will be sent a bidder's statement from the bidder and a target's statement from the company in which you own shares. These statements or documents are required by law to give you enough information to decide whether to accept the takeover offer.

It is critical to fully understand what the bidder is offering you. In an off-market bid, the bidder may be offering you cash and-or shares. If you are offered cash, the bidder must explain where the money will come from. If you are offered shares, the bidder is obliged to tell you about the company whose shares are being offered. This information should be similar to that contained in a prospectus.

Many off-market bids are conditional. Typical conditions include a proviso that the bid will proceed only if a certain percentage of shareholders accept within a certain time. Another common condition is that the offer will proceed only if the share market stays above a certain level. Sometimes the bidder will remove or adjust the conditions as circumstances change or following negotiations with the mainshareholders.

The bidder's statement should also tell you what the bidder intends to do with your company (for example, it may intend to keep the company going as it is or plan to merge it with its existing operations). You should consider how the bidder's plans may affect you as a shareholder. The bidder may intend to have your company's shares delisted from the share market, which could mean you find it difficult to sell your shares thereafter, or may plan to force you to sell your shares to it if the bidder gets enough other shareholders toaccept the offer via a compulsoryacquisition.

The directors of the company in which you hold shares will have an important role to play. When a bid is made, directors often make a statement to the effect that you should exercise caution in dealing with your shares until there is further information. This is usually sensible advice because the board may have a plan to obtain a higher price for your shares than the bid price or some other strategy to unlock shareholder value.

On the other hand, if the directors summarily dismiss the bid, then it ispossible the bid could fall awayin due course and the share price drops. It is common for directors to initially dismiss a bid as "opportunistic" or "undervaluing the company".

As the bid process unfolds, it is possible that the bidders can change their bid.

An unconditional bidder can increase the price offered or extend the time the bid is open. A conditional bidder can remove some or all of the conditions and can sometimes extend the bid. Any changes to the bid must be publicly announced on the Australian Securities Exchange and notification given to your company and the Australian Securities and Investments Commission.

It is also possible that a rival bidemerges. If the takeover effectively becomes an auction, shareholders may benefit from competitive bidding.

Here are some suggested strategies that may assist.

* It often pays to keep your options open for as long as you can. If you accept the offer immediately, you cannot accept a rival bid afterwards. That said, if you accept an off-market offer early and the bidder subsequently increases the offer price, you will receive the increased offer price. If you accept an on-market bid early (selling directly on the share market via a broker), you will receive only that price and will not receive anything extra if the bidder later increases its bid price. Sophisticated investors tend to wait until late in the process before making their decision.

* If the off-market offer includes shares as consideration, you should carefully assess whether you want to be a shareholder of that company, and consider factors such as the liquidity of those shares (Can you sell them easily?), the company's track record and whether those shares are likely to perform well or poorly in the future. You also should think about whether you are able to obtain some capital gains tax roll-over relief. It may be prudent to consult your investment adviser or accountant to inquire whether accepting the bid will trigger thatrelief.

* When an offer enters its last week, consider or get advice on whether the bid is likely to be extended. Generally, unless the bidder acquires more than 50 per cent of the voting power, an offer can be extended during the last week only if it is unconditional or another person announces or makes a takeover, or improves their already existing competing offer.

If the offer is extended, then you can go on waiting. If not, you will need to decide whether to accept the offer.

* There are times you may be better off taking the best offer while it is still on the table. There are risks in being left as a shareholder in a company after the bid closes if the bidder ends with effective control but less than 90 per cent of the shares. The bidder has control and you may find the share price drops once the offer closes.



Paul Zwi is head of equity research at Centric Wealth. This advice is of a general nature only. Consider the appropriateness of this information in light of your own circumstances.
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