Rene Rivkin’s Tip On Making Money Out Of Takeovers

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By Peter Switzer, Switzer Super Report

GrainCorp  (GNC)), Warrnambool Cheese & Butter ((WCB)) and other takeovers, along with the latest Qantas ((QAN)) controversy, makes me reflect on the best advice I’ve ever received on how to play takeovers.

It came from Rene Rivkin and it was on my old Talking Business program that I kicked off for Qantas and hosted for 10 years.

More on that later. For now, let’s just shine the spotlight on the GrainCorp kick in the guts from Canberra and what it could mean for Qantas, which is looking for Government assistance.

I have to admit Treasurer Joe Hockey must be pondering the wisdom of his decision to block the GrainCorp takeover by Archer Daniels Midland, which puts him in the supportive company of Bob Katter, Clive Palmer and the Greens! It has opened him up for criticism from the Business Council of Australia, while drawing applause from the company’s biggest shareholder, Don Seaton, who would have made $30 million out of the deal!

Of course, it is casting our new Treasurer in the same role of a wrecker of our international credibility for foreign investors, but it’s exactly what Peter Costello did with Shell’s bid for Woodside and what Wayne Swan did with the bid from the Singapore Stock Exchange for the ASX.

In this Report and on my Switzer TV show, takeover experts, such as Beulah Capital’s Tom Elliott, had expected the Treasurer to give the nod on this, despite recognising there’d be a hell of a lot of argy-bargy from the National Party.

Qantas connection

It raises the question on how much Joe will move on Qantas. Could he let them use the Government’s AAA-rating to lower its debt borrowing costs? Without Hockey’s help, Qantas might have to issue more shares, which would hurt the share price, sell assets or delay the acceptance of new aircraft to protect its investment grade credit rating of BBB-minus.

Joe’s actions on this one could determine whether he’s as free market as we all thought he’d be, or whether he’s captured by politics.

I’m not too bothered about the GrainCorp decision, but if I were a shareholder, who saw the shares fall 22% to $8.72 after the veto decision, I’d be really annoyed.

On GrainCorp, it was a worry to hand a monopoly over to a foreign company and it was why I was against the Singapore takeover of the local stock exchange. But that said, if Joe wants to protect this publicly-listed company for national interest issues, then there should be some national pressure put on this company to lift its game.

The dining boom

I believe the mining boom will be replaced by the dining boom, and that’s why the likes of Warrnambool Cheese & Butter has so many suitors. And it’s why other food business’s share prices have been bid up.

Now Warrnambool’s possible takeover by the likes of Saputo from Canada is less of an issue, as there are other dairy producers here, such as Bega and Murray Goulburn. I’d like an Aussie firm to win the prize but if Saputo wins, I wouldn’t lose much sleep, as it could be good for competition.

Meanwhile with Qantas, I don’t know how you make the case to favour one airline over another. Sure, there’s a lot more foreign ownership in Virgin Australia nowadays, but, at one stage, the company was more Aussie-owned than Qantas, but that was when it was struggling and we were paying higher prices for air travel!

Joe’s decision on this one will be interesting and will draw criticism, whichever way he goes.

Rene’s takeover tip

Now to Rene’s tip on takeovers. He always maintained that, in most cases, the first bid in a takeover will never be the last, and so you could make money by buying in on the initial bid. Clearly, it works pretty well to plan if there’s no potential Government interference, but in the case of GrainCorp, you’d have to know when to bail.

Clearly, it would be before the Treasurer’s decision goes public. Rivkin was always a ‘get in early and get out early’ kind of guy and it got him into trouble.

Between 14 April 1998 and 21 June 1999, a number of editions of The Rivkin Report published recommendations to buy or hold on to securities in Holyman Limited, FAI Insurances Limited, Murrin Murrin Investments Pty Limited, Infratil Australia Limited and Abednego Nickel Limited.

“The Rivkin Report did not tell subscribers that during the same period, Mr Rivkin placed orders to sell or sold securities in those companies,” ASIC revealed.

He got into hot water over that, and was later convicted of insider trading and went to gaol. And the company involved?  Qantas!

Adding to the irony, he was then a regular on my Qantas Talking Business program and I reckon the advice that we better drop him from the show, when the charges were first laid, probably at some stage would have gone through John Borghetti’s office!

Be wary

So, what’s my advice? Get in early, get out early and be wary of investing in airlines — lots can go wrong!

(P.S. There are some odd takeover offers that go nowhere after the first bid because it’s too high, the company has limited appeal or there’s some other negative that turns shareholders off.)

Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.

Content included in this article is not by association the view of FNArena (see our disclaimer).

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