Global Financial Trends, Private Equity, Orica and Takeover Protection

Interesting news in the last few days that Orica has said ‘No’ to a private equity takeover.  Apparently they have taken out at least two forms of takeover protection, Greenmail, and Poison Pill.  This is right out of the corporate governance textbook.
 
Reportedly the offer was 20 times the forecast annual earnings.
 
That’s interesting.  At a guess, an NPV of discounted future free cashflows would come out to around 11 or 12 times, at prevailing (conservative) discount rates.  Wonder what else they are factoring in?
 
There was much made in the press of the fact that the main shareholders of Orica are hedge funds, and realised that they would only be buying it back in a few years time at much higher prices (a la Macquarie Bank, the Qantas takeover and debt-multiples).
 
Another little trick that I hadn’t heard of was the tendency of cashed-up raiders to take positions in the stock before the offer is made, threatening to sell down if the offer is not accepted.  This gives the other stockholders the unenviable choice of ‘accept and take a small premium,’ or ‘reject and see the share price plummet.’  Thereby limiting the options of the Chairman of the takeover target somewhat.
 
I don’t know… If I was a shareholder in Orica I’d take the 20 times multiple, and invest it in something else.  Surely that is market logic, and the basis of capitalism?  Why should instos be any different?
 
Also a worrying little side-light there by some commentators that says, ‘By global standards these days, assets are cheap and global liquidity at an all time high.  Cash is not scarce any more and if you can buy-and-hold an asset, (or just hold in the case of Orica), you should, since sooner or later the Chinese are going to be in a position to buy everything…’  Apparently the ASX is not echoing the Dow any more, as the booming bourses of our Asian customers start to come more into play influence-wise.
 
Watch this space.  Hard to predict the future.  All I can say is, a good deal is still a good deal — The Sage of Albert Park.
 
 
 
 
 
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