The 12 days of Christmas – HSF M&A edition

It does not matter if you have been naughty or nice in your M&A activities this year. Everyone gets a present from us in this final edition of Deal Talk for the year.

There have been so many important things to reflect on in 2023. We thought what better than to pack your Christmas stockings with reminders of these joyful things.

Introducing The 12 days of Christmas, HSF M&A edition. We recap on 12 of the biggest developments this year in the countdown to the end of the year. You can read one each day or open all of your presents at once in the throes of overwhelming yuletide excitement.

The 12 days of Christmas – HSF M&A edition

All together now, let’s sing along…

On the first day of Christmas my true love gave to me: A Flurry of Foreign Mergers – Foreign bidders, particularly from North America, featured heavily in public M&A in 2023, representing 70% of deals by value and 21% by number. This was led by the largest of them, Newcrest’s $26 billion sale to Newmont Corporation (HSF acting for Newcrest). It was the third largest deal in Australian corporate history. North American bidders have always been a big contributor in our market, but this has notably increased in the last few years, particularly given Australia’s positioning for the energy transition theme, as well as a low Australian dollar and relative economic and political stability appealing to bidders.

On the second day of Christmas my true love gave to me: A Platoon of Pre-bid Positions – Pre-bid stakes were amassed with relative ease both by bidders and potential rival bidders. A combination of on-market purchases coupled with an equity or return swap continued to be the most popular pre-bid position, being used in TPG’s bid for InvoCare and Paine Schwartz’s bid for Costa Group. However, off-market raids were also used highly effectively by the likes of Hancock Prospecting to amass its position in Liontown and Azure. You may remember that in 2022 every bidder that had a pre-bid stake was ultimately successful in gaining control. This year, however, we saw a few instances where that was not the case, such as Potentia's bid for Tyro.

On the third day of Christmas my true love gave to me: A Bevy of Billionaire Bidders and Blockers – Private capital of the billionaire variety was seen in full force in control transactions this year, to an extent we probably have not seen since the 80s and 90s. Gina Rinehart’s Hancock Prospecting was willing to deal itself into various control transactions by quickly and decisively amassing large blocking stakes. Bids by Andrew Forrest for Mincor, Brett Blundy for Best & Less, Raphael Geminder for Pact, added to the trend. This is a development that has added to the excitement of public M&A and has left some bidders looking over their shoulder.

On the fourth day of Christmas my true love gave to me: A Drove of Dual-structured Deals – With rival bidders vying for targets, 2023 saw the continued use of the simultaneous dual transaction structures used to overcome a blocking stake. We counted 3 such situations in 2023 (Origin, Azure and Nitro). Some controversy arose in the Nitro transaction, where the target board recommended that shareholders accept the takeover bid launched simultaneously with the scheme prior to the scheme vote. Potentia questioned this in the Panel on the basis that it locked shareholders into accepting the offer before seeing if a higher offer was forthcoming. The Panel was ultimately unwilling to second guess the target board’s recommendation. In SQM’s bid for Azure, the bidder (advised by HSF) had the right to flip from a scheme into a bid, should the need arise, which it did. That was a neat feature and something we expect to see more of. 

On the fifth day of Christmas my true love gave to me: A Nursery of Nil-premium NBIOs – We saw bids for Best & Less and Pact pitched at either negative, nil or slim premiums, following the lead of Seven’s bid for Boral in 2022. In both of those cases, the bids were from controlling shareholders, and both were conducted by takeover bid. In Best & Less, the expert decided that, while it wasn’t fair value, the disadvantages and challenges of being a minority by not accepting the bid were enough to conclude the offer was reasonable. (A similar outcome occurred in the Pact bid, but only after the target negotiated an increase in the offer.) It is a playbook that companies with large controlling shareholders should be mindful of, and no doubt controlling shareholders are looking at softness in equity markets as an opportunity.

On the sixth day of Christmas my true love gave to me: A Ton of Takeover Bids – While schemes of arrangement have been the most popular form of public company M&A transaction for many years, we saw an increase in the number of bidders using a good old takeover bid to apply maximum pressure on the target and shareholders. We saw bids for companies such as Healius, Best & Less, Pact plus others. And who doesn’t love a takeover bid to get the juices running?! Towards the final phase of each bid, bidders typically declare the bid price ‘best and final’ for that extra sign to shareholders that it’s time to accept or forever hold your peace (and goodwill to fellow man or woman).

On the seventh day of Christmas my true love gave to me: A Raft of Resources Transactions – The energy and resources sector dominated public M&A in 2023, representing approximately 72% of all announced deals by value and 47% by number of all announced deals by volume. This included three of the largest proposals – Newcrest, Origin Energy and Allkem. 2023 also saw a rise in deals involving non-traditional metals, such as lithium, copper and nickel. This comes as no surprise as Australia fast tracks its energy transition, and the global competition for raw materials in a low-risk jurisdiction like Australia intensifies. This trend will continue into 2024 as Australia and the rest of the globe pushes towards its transition to net zero.

On the eighth day of Christmas my true love gave to me: A Saunter of Scheme Reforms – The courts introduced significant reforms to the scheme process, which was very well received by all. These reforms streamlined the process, reducing the once over burdensome requirements. This included the removal of the requirements to include in evidence correspondence with ASIC, proposed shareholder communications that were consistent with the scheme booklet, an overly prescriptive description of the scheme booklet dispatch process and foreign law evidence on a deed poll signed by a foreign bidder. There were various iterations and back and forth amongst judges as scheme hearings were held throughout the year, with the divergence on approach to the scheme process growing as the year progressed. The process should start to settle next year as more scheme hearings are held.

On the nineth day of Christmas my true love gave to me: A Gaggle of Guidance from the Panel – The Takeovers Panel released its revised guidance on deal protection arrangements in August. This confirmed the Takeovers Panel’s position on ‘hard exclusivity’ (that is, exclusivity with no fiduciary out). Under this guidance, hard exclusivity is likely to be unacceptable unless the circumstances warrant it and, if it is provided, it should be for no more than 4 weeks. The Takeovers Panel also relaxed its approach to notification rights, but still does expect the material terms of the exclusivity arrangements to be disclosed if the notification obligations require the target to provide the identity of the competing bidder and/or terms of a competing proposal to the original bidder. It was clear following the release of the Takeover Panel’s consultation paper in late 2022 that market participants quickly adapted to the then proposed guidance note. We saw both Estia Health and United Malt grant the bidder hard exclusivity for 4 weeks.

On the tenth day of Christmas my true love gave to me: A Surfeit of Soft-No’s – This is the clayton’s rejection. It is when a target board rejects an approach, but offers ‘limited non-public information’ to help the bidder formulate an improved proposal. In 2023, we saw it used by Newcrest, Silk Laser, InvoCare, United Malt and others. It tended to produce a better outcome for everyone and usually gave the target the benefit of a standstill from the bidder in exchange for access to the information.

On the eleventh day of Christmas my true love gave to me: An Assembly of Activist Shareholders – When we reflect on 2023 and think shareholder activism, AusSuper immediately comes to mind. AusSuper single-handedly put a halt to the Brookfield-EID consortium bid for Origin Energy. The consortium bid for Origin Energy started at an initial offer of $9 per share back in November 2022, at which point AusSuper had not publicly commented on the transaction. Over the next 11 months or so, three bid price confirmations and a price chip by the consortium, AusSuper in the 11th hour came out publicly stating that it would vote its stake against the deal, citing that the deal did not represent the value of Origin Energy. After some quiet years generally being passive investors, we expect super funds to be more vocal and influential in public M&A.

On the twelfth day of Christmas my true love gave to me: A Miscellany of Merger law reform proposals – The chair of the ACCC announced in April that the current law is no longer fit for purpose and major reforms are needed. Critical reforms proposed include a compulsory notification requirement coupled with an inability to complete a deal without ACCC clearance and a reverse onus of proof so that the parties have to show the transaction will not substantially lessen competition, rather than the ACCC needs to show that it will. The prospect of these reforms may encourage potential merger partners to bring their transactions forward before the law changes. (A silver lining for some perhaps.)

Conclusion

As we can see, 2023 has been a year filled with developments in Australian public M&A.

We hope all of you have a fun and relaxing festive season, ready to activate all of your acquisition and divestment pursuits in 2024.