• BRETTPlant is a Partner at PKF Chartered Accountants specialising in Corporate Advisory.
• His focus is the transfer of ownership in businesses offering services in the business sale, valuation and due diligence areas.
In the current economic environment Brett’s team has been focussing on restructuring at both an equity and debt level.
• While the rate of business sale activity has slowed, deals are still being completed with a combination of cash and equity in some cases while in others at a reduced price to the heady times of 12 months ago.
CASE STUDY – THE BENEFITS OF DEFENCE
The 08/09FY has been a bad year for many, with lots of corporations going into caretaker mode and watching as the market undervalued their assets. Roo-Bus Airways (RBA) was no exception and over the last few years, regularly communicated its disappointment with the value proposition which the market formed regarding its assets and shares.
In early 2009 Koala Air (KA) launched a bid for RBA offering $5.50 per share. An independent expert’s report commissioned by KA indicated that the offer was fair and reasonable. With recent market sentiment in mind, RBA’s chairperson communicated to other board members that she strongly supported the offer and urged them to recommend it to shareholders. Fortunately, Mr Jones (an executive director from the UK hired 12 months ago), had previous experience defending against a takeover and had the foresight to start planning ahead.
In October 2008, Mr Jones forged a deal with BoWing (who had been supplying spare parts and routine maintenance to RBA for years) which saw BoWing make a strategic investment in RBA at a discount, in exchange for a 10-year renewal of their parts supply and aircraft maintenance contract, subject to termination upon any change in control event occurring.
Mr Jones (who was strongly of the opinion that shareholders could expect more than $5.50) persuaded the board that it was their job to do everything in their power to ensure that either the bid did not succeed or shareholders were fairly remunerated. Consequently, RBA started a strong defence campaign. Mr Jones immediately assembled a defence team comprising a strong spokesperson, two key board members, the chair person and experienced legal, taxation and public relations advisers. RBA commissioned its own independent expert’s report, which demonstrated that while the KA offer may be fair and reasonable, it was in the lower range of the expert’s valuation. Mr Jones also contacted the CEO of BoWing, who assured him that its contract was too important and he could count on the full support of BoWing’s 15 per cent share parcel to defend the bid. They even discussed a possible veritical integration deal between them. Over the following week RBA’s share price rose to $6.40 and a rival bid emerged. The competitive tension between the two bids saw RBA sold for a price of $6.85 per share.
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