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Australia’s Big Wave of Takeovers Start With Minority Stakes

·2 min read

(Bloomberg) -- The biggest deals are increasingly starting small in Australia, as suitors raid companies’ shares in order to pressure boards, fend off rival bids and maybe just eke out an investment gain.

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At least six of the 20 largest takeover proposals in the country in the last six months totaling A$21.4 billion ($14.8 billion) have come with the suitor acquiring a minority stake in its target during the period, according to data compiled by Bloomberg.

The so-called toehold tactic reflects a moment where the stock market has soured substantially, leaving some assets priced attractively enough that deal-hungry corporations and private funds are quietly buying shares, even if they aren’t yet willing to pull the trigger on a takeover.

“Bidders aim to put themselves in a prime, though not necessarily exclusive, position for a deal in the future,” Kierin Deeming, head of M&A for Australia at JPMorgan Chase & Co., said in an interview.

Putting rival bidders on notice, or simply buying shares cheaply, are among the reasons why would-be acquirers want to start small.

That doesn’t mean they’ll be greeted by companies as liberators. Some boards are reluctant to entertain selling at what they think is a discount relative to recent highs, Deeming said.

Suitors may say, “‘we can see a path here where it may be six to 12 months before it’s a more conducive M&A environment, but let’s get 20% now and play the long game’,” Deeming added.

Billionaire Mike Cannon-Brookes’ activism against Australian power provider AGL Energy Ltd. in May marked Australia’s first use of share borrowing to amass a stealth position. The template was recycled in July by Australian pension fund IFM Investors Pty when it acquired 15% of Atlas Arteria Ltd. as it considered a takeover bid for the toll-road operator.

Nickel miner OZ Minerals Ltd. revealed that BHP Group had accumulated less than 5% via derivatives when it disclosed it had rebuffed a $5.8 billion takeover offer by the world’s largest miner this month.

Read More: BHP Returns to Major M&A in Hunt for EV and Clean Energy Metals

To be sure, raids are a high-wire act, Deeming said. Bidders telegraph their intentions to the world, though the risk in Australia is less than in other markets as shareholder rights plans, or poison pills, are effectively banned.

“Bidders have to make a material investment without due diligence in a volatile market,” Deeming said. “It’s not for everybody.”

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