Tight conditions to prevent surprises

By PAM GRAHAM

Burns Philp's hostile bid for Goodman Fielder raised eyebrows among investment bankers for its very specific conditions relating to financial information.

The bid is conditional on information for the previous three years on non-recurring revenue items and restructuring costs, as well as profit forecasts for next year.

This is seen as protection against any nasties in the accounts such as capitalisation of expenses, proper recording of working capital and contingent liabilities.

The last bidder for Goodman Fielder lowered its indicative bid after seeing the books. Last year, it was widely reported that Pacific Equity Partners, a firm that specialises in taking undervalued companies into private ownership, was trying to buy Goodman Fielder but it lowered its indicative price range of $1.70-$1.75 to $1.63-$1.67 after due diligence.

Burns Philp's bid conditions were also seen as a clever way of forcing disclosure from Goodman Fielder. They put the directors in a position of having to either give quite detailed information about the company or open the books.

Hostile bidders make bids without doing due diligence - as happened when AMP bid for insurance company GIO. Huge writedowns on the investment ensued.

If the deal proceeds, Burns Philp is expected to either have to raise equity or sell acquired assets to reduce debt.

Some saw no synergies between the two companies' products, while others said the synergies lay in distribution, rather than products.

The takeover comes in a lean year for mergers and acquisitions in Australia and after hopes for the huge sale of the remainder of Telstra were dashed.