The Australian mining group's acquisition of its peer shows takeovers have the edge over schemes of arrangement when it comes to speed and flexibility
Thiess’s recent bid for MACA demonstrates the advantages that takeovers can have over schemes of arrangement in terms of speed to achieving control and flexibility in dealing with competing proposals.
- Thiess announced a recommended takeover bid for MACA on 26 July 2022. There was some initial resistance from shareholders and a rival proposal emerged, which led Thiess to bump up its offer price. Thiess subsequently acquired control on 3 October 2022, which was 69 days after the bid was announced.
- The Australian Financial Review reported that this was a quick change of control. It is certainly quicker than a scheme of arrangement (which typically takes around 120 days). By contrast, we have observed that takeover bids usually take just over 1 month from when the offer opens for the bidder to acquire control (provided that there are no regulatory approvals required).
- Despite being a minority of public company transactions, bidders should keep takeovers in mind when considering the best structure for their transactions.
On 26 July 2022, Thiess, a mining services group owned jointly by CIMIC and US hedge fund Elliott Management, announced it had entered into a bid implementation deed with MACA, a Perth based construction group. The offer was for $1.025 cash per share with a 90% minimum acceptance condition.
Despite the board recommendation, it was reported that some MACA shareholders did not immediately see value in Thiess’s offer. A few days after the offer opened, it was revealed that NRW Holdings had approached MACA with a competing proposal — a half scrip, half cash offer with an implied value of $1.085 per share to be effected under a scheme of arrangement.
NRW’s proposal was subject to a number of conditions, including completion of due diligence, finance and a unanimous recommendation from the MACA board. As a result of the additional conditionality, mixed consideration and some uncertainty regarding financing, the MACA board considered NRW’s competing proposal not to be superior to Thiess’s bid.
In any event, Thiess flexed its strength and upped its offer to $1.075 cash per share. On 27 September 2022, it declared its bid unconditional while it controlled just over 40% of shares. A week later on 3 October 2022 Thiess passed 50% and had control of its target. All up, it took 69 days from the initial announcement of the recommended bid.
The relative speed of Thiess’s bid for MACA as compared to a scheme of arrangement is worth mentioning. Despite dissenting shareholders, a competing proposal and greater difficulty acquiring acceptances than initially expected, the timeline from announcement to acquisition of control was 69 days.
By contrast, schemes of arrangement take far longer to gain control. From the time a scheme is announced, the usual minimum period to reach control is around 3 months and the period is often much longer. The median number of days it took for schemes to reach implementation in FY22 was 122.
As the scheme process involves various steps required by law, including giving ASIC time to review the scheme booklet, providing shareholders with 28 days’ notice of the scheme meeting, and going to court at least twice, there is little that can be done to shorten the timetable.
The Australian Financial Review picked up on the speediness of the MACA transaction (see the article here), reporting it took Thiess 34 trading days from open of its offer to reach 40%. The report noted that this was quicker than the average of 43 trading days based on a survey of all takeover bids for ASX-listed companies worth $200 million or more since the start of 2019.
In fact, many successful takeovers are quicker than Thiess’s bid. We calculate 42 days to be the average number of days from the offer open date until control passes to the bidder. This factors in all public company takeovers over the past two years where the bidder did not hold a controlling shareholding in the target at the time of making the bid.
The shortest recent successful takeover measured in this way is Ramelius Resources’ bid for Apollo Consolidated, another transaction which involved a competing proposal arising after the parties had entered into an implementation agreement. In that transaction, Ramelius was prompted to improve its cash and scrip offer and remove conditions following a rival takeover bid from Gold Resources, an existing 19% shareholder in Apollo. Following Ramelius’ revised offer opening on 1 November 2021, it took just 11 days for Ramelius to gain control of Apollo.
FLEXIBILITY DURING THE OFFER PERIOD
Rival bids often complicate and lengthen the timeline to control, regardless of the transaction structure. This is because both the target’s board and shareholders are forced to weigh up the two options. However, the complication is amplified in schemes as their procedural rigidity generally precludes the bidder from responding dynamically to a rival bid, unlike a takeover bid. Even if shareholders want to accept, they have to wait until the formal scheme meeting.
A takeover bid will give a bidder far more flexibility to change the terms of the offer mid-way through the process if, for example, it becomes necessary to increase the consideration to ensure success. In contrast, to improve the terms of the offer mid-way through the scheme of arrangement process may require the parties to go back to court and push back the meeting date.
Another illustration of the flexibility of takeover bids compared to schemes was the fight for Virtus Health between BGH Capital and CapVest Partners earlier this year. By proceeding with a takeover bid, BGH was able to buy shares on market, acquire a stake of around 23% and snooker the scheme proposal from CapVest. Had BGH been relying on a scheme, it would not have been able to do that.
All things being equal, a takeover bid will typically be a faster route to control than a scheme of arrangement. It will also provide a great deal of flexibility for the bidder to deal with events as they unfold. The speed may be enhanced by a board recommendation and indications of support from key shareholders. The Thiess bid for MACA (and BGH’s bid for Virtus) shows that takeovers bids are a useful alternative to the now common scheme of arrangement.