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THE BIG PICTURE: Takeovers update WWW.BELLGULLY.COM March 2018
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Page 1: THE BIG PICTURE: Takeovers update - bellgully.com Documents/The Big Picture... · THE BIG PICTURE: Takeovers update  March 2018

THE BIG PICTURE:

Takeovers update

W W W. B E L L G U L LY. C O M

March 2018

Page 2: THE BIG PICTURE: Takeovers update - bellgully.com Documents/The Big Picture... · THE BIG PICTURE: Takeovers update  March 2018

1 | TAKEOVERS UPDATE

New Zealand listed companies attracted strong interest from buyers in 2017, the busiest year for takeovers in a decade.

In the fourth consecutive year of increased takeover activity in this market, eight takeovers were launched targeting NZX Main Board listed companies in 2017.1 Not only was this the busiest year for takeover activity in the past decade, but the level of activity was approximately twice the average annual rate since the Takeovers Code came into effect in 2001.

While the figures show a more active market than usual, success was more elusive. Of the eight takeovers, three were successful, four were unsuccessful and one is still in progress. The success rate of 43% from seven completed takeovers is well down on the historic average of 76% over the last 15 years. This increased failure rate was driven by two of the takeovers being successfully contested and one failure to obtain a regulatory approval.

This update summarises three key observations from the takeover activity during 2017.

A year in review

1 Excluding one takeover (Zhejiang Rifa’s follow-on offer for Airwork) where the bidder already held a majority shareholding in the target. This is in order to focus on change of control transactions.

NUMBER AND VALUE OF TAKEOVERS LAUNCHED BY YEARFOR NZX MAIN BOARD COMPANIES

(hal

f ye

ar

on

ly)

2016

20

17

2015

2014

2013

2012

2011

2010

200

9

200

8

200

7

200

5

200

3

200

1

200

2

200

6

200

4

Number of takeovers launched

Value (NZ$ billion)

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2 | TAKEOVERS UPDATE

Increased use of schemes

DEAL SPOTLIGHTUse of scheme on a smaller takeover

Yang Kee Logistics’ NZ$55 million acquisition of Fliway

was conducted by way of a scheme of arrangement. Prior to this transaction, the average transaction value for the seven takeovers conducted by way of scheme of arrangement in New Zealand during the previous 15 years was NZ$1.3 billion. The Fliway acquisition demonstrates that schemes can be a viable method of conducting smaller takeovers.

SCHEME TAKEOVER

• Generally a lower threshold to achieve 100% control – 75% of votes cast in each interest class (plus more than 50% of total votes in favour) as opposed to acceptances for 90% of voting rights for a takeover

• Structural flexibility – significant flexibility for transaction structuring

• All or nothing outcome – no commercial pressure to waive 90% minimum acceptance condition and therefore having to close offer between 50% and 90%

• Timetable flexibility – the timetable under the Takeovers Code does not apply to a scheme

• Can be the quickest way to achieve 100% control

• “Friendly transaction” – perceived as more cooperative and mutual

• Can be undertaken on a hostile basis

• Can be the quickest way to achieve majority control

• No need for court approval – this is in contrast to a scheme, where there is a risk that objectors will seek to convince the court to modify or reject the scheme

• Can achieve a majority control even with a blocking stake – a stake of 10% or more will not prevent a bidder from acquiring majority control, whereas a 20% stake is likely to be effective in blocking a scheme transaction

TAKEOVERTAKEOVERSSCHEMES

SCHEMES VERSUS TAKEOVERS ADVANTAGES FROM THE BIDDER’S PERSPECTIVE

Following Allnex’s successful NZ$1 billion takeover of Nuplex Industries by way of scheme

of arrangement in 2016, half of the eight takeovers announced last year were structured as schemes of arrangement. This puts the use of

schemes in 2017 at a similar level to that seen in Australia in recent years, and significantly above the historic rate of 7% observed during the previous 15 years (which included a period of regulatory uncertainty).

TAKEOVERS50%

SCHEMES50%

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3 | TAKEOVERS UPDATE

Importance of board recommendation

The importance of a board recommendation was demonstrated on WSP’s

takeover offer for Opus, which was announced in August 2017. Opus’ 61% majority shareholder had agreed, prior to the offer being announced, to sell to WSP. The offer was not subject to a 90% minimum acceptance condition and the offer price was within, but at the bottom of, the independent adviser’s valuation range. Nevertheless, the Opus board was able to secure a price increase as part of agreeing to recommend that shareholders accept WSP’s offer. Having obtained this recommendation, WSP was successful in obtaining the 90% acceptance level, permitting it to acquire 100% of Opus.

DEAL SPOTLIGHTO.G. Oil & Gas’ takeover of New Zealand Oil & Gas

In its bid to win over New Zealand Oil & Gas (“NZO”) shareholders, O.G. Oil & Gas (“OGOG”) increased its partial takeover

offer by one cent to 78 cents per share so that it was within the independent adviser’s valuation range. By doing so, it secured a recommendation from the independent directors of NZO. OGOG’s offer was successful. It was four cents per share higher than the competing offer from Zeta Energy, which was not recommended by the independent directors of NZO nor within the independent adviser’s valuation range. The Zeta Energy offer lapsed due to a lack of acceptances.

Last year we released the first in-depth analysis of New Zealand takeovers data since the introduction of the Takeovers Code in 2001. A copy of our report is available here.

TAKEOVERS MARKET PRACTICE REPORT

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4 | TAKEOVERS UPDATE

Contested offers

Historically, a notable feature of the New Zealand takeovers landscape has been the lack of

contested takeovers, with only 5% of takeovers for NZX Main Board listed companies since the Takeovers Code came into effect being contested by another party making its own takeover offer.

2017 saw two contested takeovers - the proposed schemes in relation to Tower from Fairfax Financial and Vero, and competing bids for NZO by Zeta Energy and OGOG.

The outcomes of these deals may encourage greater competition for New Zealand target companies when they are put in play. OGOG’s offer for NZO was successful, while Vero’s proposed scheme (and its associated stake building) resulted in Fairfax Financial terminating its own proposed scheme process.

Failure of Zeta Energy offer

The success of OGOG’s offer for NZO came despite the fact that Zeta Energy had entered into “lock-up” agreements in respect of approximately 30% of NZO’s shares. Zeta Energy’s offer is, to our knowledge, the first takeover offer under the Takeovers Code for an NZX Main Board listed company to fail despite having secured lock-ups. Those lock-up agreements terminated when Zeta Energy’s offer lapsed (and those shareholders who had entered into lock-ups accepted OGOG’s higher offer). We believe there were two key reasons behind this result.

• Most of the shares locked up were held or controlled by associates of the bidder. Less than a third of the shares locked up were held by third parties. This is likely to have significantly diluted the signalling effect that lock-ups usually convey to other target shareholders.

• Zeta Energy’s offer price was below the independent adviser’s range and not recommended by the NZO board.

WHY?

OFFERS with lock-ups failed

2

DEAL SPOTLIGHT Blocking stake on a scheme

The risk of a blocking stake being secured on a scheme was demonstrated in the context of the competing offers for Tower. Fairfax Financial, the first bidder, secured voting commitments from two institutional shareholders for approximately 18% of the Tower shares. Vero subsequently acquired a 19.9% shareholding

on market. Based on typical voter turn-out numbers, Vero’s stake would have been likely to defeat Fairfax Financial’s proposed scheme, given the need to obtain approval by at least 75% of those eligible to vote and voting. Interestingly, the voting commitments that Fairfax Financial secured did not prevent the relevant institutions from voting in favour of a competing scheme.

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5 | TAKEOVERS UPDATE

$

Takeovers launched in 2017

TARGET BIDDER STRUCTURE MONTH ANNOUNCED

CASH SCRIP CONTESTED OFFER?

TRANSACTION VALUE ($NZ) SUCCESSFUL?

TeamTalk Spark Takeover FEB $ x $23 million x

Tower Fairfax Financial Scheme FEB $ % $197 million x

Tower Vero Scheme JUN $ % $189 million x

New Zealand Oil & Gas Zeta Energy Takeover AUG $ %$42 million

(50% of shares) x

Opus International Consultants WSP Takeover AUG $ x $284 million %

New Zealand Oil & Gas O.G. Oil & Gas Takeover SEP $ %$80 million

(70% of shares) %

Fliway Group Yang Kee Logistics Scheme OCT $ x $55 million %

Trilogy International CITIC Capital China Partners Scheme DEC $ x $211 million In progress

$

2 For NZX Main Board listed target companies and excluding offers where bidder had majority control.3 But offer effectively defeated by an asset sale to Vodafone. 4 Excludes value of pre-bid stake held by bidder.

2

3

4

4

4

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6 | TAKEOVERS UPDATE

Our experience

Our takeovers experience includes the following transactions:

Fliway Group

Bell Gully advised Fliway Group on its successful NZ$55 million takeover by Yang Kee Logistics by way of a scheme of arrangement

Fisher & Paykel Appliances

Bell Gully advised Fisher & Paykel Appliances on its successful NZ$927 million takeover by Haier

New Zealand Oil & Gas

Bell Gully advised O.G. Oil & Gas on its successful NZ$80 million contested partial takeover of New Zealand Oil & Gas

Charlie’s Group

Bell Gully advised Asahi on its successful takeover of Charlie’s Group

Opus International Consultants

Bell Gully advised Opus International Consultants on its successful NZ$284 million takeover by WSP

Crane Group

Bell Gully advised Fletcher Building on its successful NZ$1.3 billion takeover of Australian building products company Crane Group

Nuplex Industries

Bell Gully advised Nuplex Industries on its successful NZ$1 billion takeover by Allnex by way of a scheme of arrangement

Turners & Growers

Bell Gully advised BayWa on its successful NZ$216 million takeover of Turners & Growers

Hellaby Holdings

Bell Gully advised Bapcor on its successful hostile NZ$350 million takeover of Hellaby Holdings

Waste Management

Bell Gully advised Waste Management on its successful NZ$903 million amalgamation with Transpacific Industries

Airwork Holdings

Bell Gully advised the majority shareholder of Airwork Holdings on the successful NZ$211 million partial takeover by Zhejiang Rifa Holding Group

MediaWorks

Bell Gully advised Ironbridge Capital on its successful NZ$528 million takeover of MediaWorks

Page 8: THE BIG PICTURE: Takeovers update - bellgully.com Documents/The Big Picture... · THE BIG PICTURE: Takeovers update  March 2018

Contacts

Acknowledgements

Our thanks to Bell Gully lawyer Caroline Dekker for her assistance in preparing this update.

For further information about this update, please contact any of the partners listed below or your usual Bell Gully adviser:

James GibsonPARTNER

DDI +64 9 916 8962 MOB +64 21 703 735

[email protected]

PARTNER AucklandPARTNER Auckland

Amon NunnsPARTNER

DDI +64 4 915 6741 MOB +64 21 687 368

[email protected]

PARTNER WellingtonAnna BuchlyPARTNER

DDI +64 9 916 8649 MOB +64 21 622 555

[email protected]

PARTNER Auckland

Disclaimer: This publication is necessarily brief and general in nature. You should seek professional advice before taking any further action in relation to the matters dealt with in this publication.

All rights reserved © Bell Gully 2018

W W W. B E L L G U L LY. C O M

James CooneyPARTNER

DDI +64 9 916 8620 MOB +64 21 190 6145

[email protected]

PARTNER Auckland


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