FYI | Feb 21 2007
De mortuis nihil nisi bonum.
(“about the dead, nothing unless a good thing")
My mind wandered back to the late Rene Rivkin today, which explains the opening sentence of this story.
Apart from leveraging off his own name and fame to build up Australia’s first and largest stock market tipsheet (the overall recollection of the facts appears a bit blurred but it would seem he managed to build a database of 45,000 people at the peak of his project) Rivkin later became a fervent supporter of investors buying into takeover targets once a formal proposal had been announced.
In his typical flamboyant and bold style he’d declare his analysis had shown 90% of all corporate takeovers would either attract a competing suitor or the initial bidder had to increase its offer. In other words: playing corporate targets was a highly profitable business.
I did some research on the matter a few years ago and –of course- there was no such thing as a 90% cut off rule in takeovers of listed companies. Sometimes the first strike hits the bulls eye, sometimes it doesn’t. The percentages swing heavily on the outcome of a few examples only.
But even then suitors can still withdraw (remember Coles?) or simply accept whatever they can get and allow for minority shareholders to remain on board (see Portman (PMM)).
Apart from this, one really has to question the nerve wrecking exercise of sitting on Rinker’s (RIN) shareholder registry with the sole aim of trying to cash in on Cemex’s interest. You probably would not want to know what some other stocks have been doing over the past few months, would you?
Apart from all this it sometimes does pay off to run with the arbitrage-seekers in the market and sit on a bunch of shares that are trading above the indicated offer. I know I’ve said this before –I am not a betting man- but let’s just assume, for now, I am.
I’d be willing to bet E*trade Australia shareholders will receive more for their equity than the $4.05 per share ANZ Bank (ANZ) is offering right now.
And I am not counting on the fact there might be some substance to market speculation that US based co-founder E*trade Financial Corp might still decide to jump into the ring as well.
Only two of the ten experts we monitor daily at FNArena actively cover E*trade Australia. But both believe ANZ is trying to copy the highly successful CommBank-CommSec model on the cheap.
Acquiring E*trade Australia is not about securing future growth at the online brokerage service provider. As a matter of fact, Aspect Huntley is currently counting on moderate EPS growth only for E*trade Australia over the next few years. Deutsche Bank has penciled in a declining (!) EPS growth profile.
ANZ is aiming at duplicating the CommSec model and that means the E*trade operations have to put a rocket under its wealth management operations. What this means is that ANZ is counting on a multiple of benefits and advantages that will come from the acquisition and integration of the operations. For obvious reasons the bank is not telling anyone what its in-house projections are.
It doesn’t have to. The response from investors and shareholders has sent a clear message to the bank’s board: both Deutsche Bank and Aspect Huntley have advised their clientele not to offer their shares to ANZ and to sit and wait. E*trade Australia shares closed at $4.22 today, 17c above the ANZ offer.
I think it is a fair conclusion to say that ANZ will be forced to increase its offer, or walk away.
Today saw another twist added to the story with the largest shareholder in E*trade Australia, private funds manager Caledonia Investments Pty Ltd, announcing it had increased its stake by more than one million shares to a 10.46% voting power in the company.
Interestingly, the stock market statement shows Caledonia had actually started to sell down its stake throughout December, but the trend was quickly reversed in January and over the past few days.
Investors may remember Caledonia as one of the major shareholders in the former stand-alone Sydney Futures Exchange who forced suitor ASX (ASX) to drop its own managing director in favour of the target’s Robert Elstone.
The same Caledonia has now sent a message to ANZ.
Yes, I think I’d be willing to take this bet.
Which reminds me of: Pecunia non olet. (Look it up once and you will never forget its meaning again).
Till next week!
Your I-feel-fairly-confident-this-week editor,
Rudi Filapek-Vandyck
(as always supported by the Fab Bunch: Terry, Chris and Greg)