KEY POINTS:
Shareholders are raising the bar for private equity firms seeking to gain control of some of Australasia's plum assets.
The bid by Sir Anthony O'Reilly's Independent News and Media (INM) and its two private equity partners to gain 100 per cent of media company APN is the latest Australasian takeover offer to hit hurdles.
But irrespective of whether the bid gets over the line on Friday, the lengthy process would appear to have resulted in a permanent re-rating of APN stock's value which must ultimately benefit INM as much as minority investors.
INM owns 38.5 per cent of APN.
Most analysts were quick to pick the O'Reilly-led bid would fail after Perpetual said on Monday it would vote against the consortium's scheme of arrangement unless there was a "material change of circumstances" to the A$6.20 a share offer.
Perpetual holds 13.4 per cent of APN's stock and 11.7 per cent of voting rights.
On its own the Perpetual resistance is not enough to scuttle the bid. But if other institutional holders follow suit, as market reports suggest, the consortium is unlikely to get over the line when voting takes place in Sydney on Friday.
APN's share price closed at A$5.80 yesterday.
But it is not down as far as the A$5.15 to A$5.44 a share "fair market value" that APN's independent adviser, Deloitte Corporate Finance, has suggested is likely if the bid fails.
This would indicate that not all major shareholders have priced in a failure at this stage.
But it also suggests a higher price and other changes will be required if the bid does fail and the consortium has to go back to the drawing board for a third time.
APN's independent directors, led by deputy chairman Ted Harris, have trod a careful path.
Like many such takeover deals, the consortium's takeover bid features a A$27.5 million break fee. But the conditions on the application of the break fee are tighter than those that the Macquarie-led bid for Qantas, for instance, had initially wanted - before the airline's directors forced a rethink upon the consortium.
APN would have been obliged to pay INM (Australia) Ltd - which is the bidding vehicle - A$27.5 million if a competing transaction had been announced and the "person" proposing the transaction acquired a relevant interest in at least 50 per cent of APN's shares.
This was always a most unlikely option because of INM's cornerstone stake in APN, but these types of clauses are becoming commonplace in such offers to make sure no competing bids are solicited.
The break fee could also have been applied if APN's independent directors did not recommend the scheme, withdrew their recommendation, or made public statements saying they no longer supported the proposed scheme.
But as the APN directors had recommended the $A6.20 a share offer - after negotiations with the consortium succeeded in a higher bid - this again was most unlikely.
What is intriguing about the recent spate of Australian private equity bids is the effect on target company share prices.
The Qantas share price was forecast to tumble below $A5 when Australian Airline Partners (APA) could not get 50 per cent acceptance of their $A5.45 a share offer. Many predicted a bloodbath as hedge funds that had scooped up 45 per cent of the stock raced for the exit door.
But nearly three weeks later, Qantas' share price is still around $A5.30, confounding analysts' projections.
What APA's bid has achieved is to force Qantas management to reveal a lot more about the company's strategy, plans and projections than would otherwise have been disclosed in a competitive environment.
Qantas chairwoman Margaret Jackson - who strongly plugged the APA deal - has announced she will resign in November and the scramble is on to fill her shoes. Jackson is reported as saying she was surprised the hedge funds were still on the Qantas register, and warning there is still potential for price volatility if they sell out.
But she has also revealed Qantas will undertake an "extensive review of its capital management strategies". APA had intended to take some A$4 billion out of Qantas. The Qantas board is unlikely to totally share APA's appetite for risk, but shareholders can now look forward to a capital payout.
In New Zealand, Ironbridge Capital would appear to have anticipated this problem in its $385 million bid for Canwest MediaWorks.
When the bid was announced, Ironbridge - which had already sewn up 70 per cent of the company by acquiring the stake of Canwest MediaWork's Canadian parent - indicated it was talking to the company about the potential for an 11c-a-share special dividend to be paid before control changed.
Significant minority shareholders such as Brook Asset Management, which has steadily been accruing shares, got on the bandwagon.
CanWest MediaWorks now says it will pay 10c a share as a special cash dividend before the company comes under private equity control.
This will provide a windfall for shareholders irrespective of whether Ironbridge ultimately gets to 100 per cent, and will unlock the value of imputation credits.
Most private equity financing deals rely on getting to 100 per cent control of the target so that its cashflow can be accessed without having to take account of minority shareholders' interests and related party restrictions.
But institutional shareholders are indicating they might want to stay in for the ride. It looks like the future gains may accrue to those companies - and private equity firms - that find ways to creatively accommodate all interests.
