Bloomberg News

Befriend White Knights Early, Greenhill Tells Australia Clients

September 04, 2011

Sept. 5 (Bloomberg) -- Companies in Australia, where unsolicited takeover bids are at record levels, should prepare for hostile approaches by befriending possible white knights years in advance, Greenhill Caliburn said.

“You need to understand who the potential counter-bidders are and who you should be making friends with,” Greenhill Caliburn Co-Chief Executive Officer Simon Mordant said in an interview in Sydney. “You can’t start to make friends the day you receive an approach -- that takes months and years.”

Australian companies received $23 billion of hostile or unsolicited takeover proposals so far in 2011, more than in any full year since Bloomberg started compiling the data in 1999. Fosters Group Ltd., advised by Goldman Sachs Group Inc. and Gresham Advisory Partners Ltd., on Aug. 23 said it planned to return A$500 million to shareholders and review assets as it sought to repel a A$9.5 billion ($10.2 billion) approach by rival brewer SABMiller Plc.

Once an offer is made, it’s already too late for management to start meeting shareholders or articulate plans for growth, Mordant said. “If you receive an approach and you start to talk about strategy for the first time, you have very little credibility,” he said.

Mordant, 51, and his partners last year agreed to sell Sydney-based Caliburn Partnership Pty, created in 1999, to Greenhill & Co., the New York-based firm founded by Robert Greenhill, for as much as $181 million, according to the March 2010 agreement.

Squeezing Buyers

Greenhill Caliburn, as the firm was renamed, is 26th among arrangers of mergers involving Australian companies in 2011, Bloomberg data show. The firm advised Coal & Allied Industries Ltd., which last month squeezed a higher A$1.53 billion offer out of Rio Tinto Group and Mitsubishi Corp. for the shares in the company they didn’t already own.

Last year, Greenhill Caliburn helped Lihir Gold Ltd. draw a sweetened proposal of A$9.7 billion from Newcrest Mining Ltd.

An informed board should know what its company is worth at the time of any bid, according to Mordant.

“That’s core to the whole debate,” he said. “You’ve got to understand what the market thinks of you. Companies are particularly vulnerable when the market doesn’t understand you, your strategy and where you’re going.”

Macarthur Coal Ltd., a Brisbane-based miner advised by JPMorgan Chase & Co., last week accepted an increased bid worth A$4.8 billion from Peabody Energy Corp. and ArcelorMittal. Peabody and ArcelorMittal raised their offer after London-based Anglo American Plc was said to be studying Macarthur’s finances to examine a potential counterbid.

‘Cheaper to Buy’

Australia’s benchmark S&P/ASX 100 index has dropped for five months after four straight monthly gains. Valuations have fallen so much that debt-funded takeovers look attractive, according to an Aug. 28 report by Citigroup Inc.

Even after paying at least 30 percent more than the stock price of almost half the companies in that index, buyers could service all the debt used to fund the deals with the target’s cashflow alone, Citigroup said.

“With large shifts in the equity market, you tend to have more hostile takeovers,” said Garry Twite, a professor who specializes in corporate finance at the Australian National University in Canberra. “It’s cheaper to buy rather than build in this environment. Friendly mergers tend to be done in periods of relative stability.”

‘Sit on Hands’

Ron Malek, Mordant’s co-head at Greenhill Caliburn, said that in a period of unprecedented market swings, struggling companies are the most obvious prey. Even so, directors may be less inclined to embark on takeovers, he said.

“The by-product of volatility can well be that people take longer to transact or indeed decide to sit on their hands,” said Malek, 45, who like Mordant is an ex-ABN Amro Group NV banker. Still, Greenhill Caliburn can earn more than a third of its revenue from work that isn’t announced, Malek said.

The 40-person firm, which typically chooses to advise one large company in any industry, is looking to Graeme Samuel, previously chairman of the Australian Competition & Consumer Commission, to win more business. A former banker with Macquarie Group Ltd. and co-founder of Grant Samuel in 1988, Samuel last month joined Greenhill Caliburn to lead the Melbourne office.

“There are very few high-quality people who are culturally compatible with us in this market,” Mordant said. “If we can secure two or three senior people like Graeme over the next couple of years, that would be absolutely fantastic.”

--Editors: Mohammed Hadi, Philip Lagerkranser

To contact the reporter on this story: Angus Whitley in Sydney at awhitley1@bloomberg.net

To contact the editor responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net


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