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Rejecting a takeover offer is a bold step for an ASX company to take. It is turning down sweet quick cash for its shareholders and management. The argument most commonly made to reject them is that any offers are opportunistic and do not appropriately value the company – indeed, those very words are commonly used.
The board will tell shareholders there is more value to be made, either explicitly or by simply saying it would be open to offers that appropriately value the company (hint: a bigger offer). Sometimes the board is right and more value is created later on. But other times they will show they should’ve just taken the money.
Here are 5 instances an ASX company rejected a takeover offer and how it worked out for them.
Rejecting a takeover offer
1. Infomedia (ASX:IFM)
Our long-time readers would be familiar with what happened to this company, which is a provider cloud-based parts and service software to the global automobile industry. Throughout last year, there was takeover interest from as many as 3 suitors. Unfortunately, this interest has failed to convert itself into a final offer even with months of due diligence.
After 5 months or so, IFM decided to end talks, but shares fell because investors suspected potential suitors found something in their due diligence that scared them away from closing a deal. After shares rose from $1.19 to $1.72 in May and June, they fell as low as $1.11 in December 2022.
But in 2023, it went up above $1.70 again and is now up 30% due to its solid financial results. Overall, the jury is still out on whether or not management made the right call.
2. AGL (ASX:AGL)
Most of the time, takeover suitors who were rejected will just walk away and look for another deal. But
Double Bay Jesus Mike Cannon-Brookes wasn’t willing to walk away with nothing.
Even though he didn’t ultimately takeover the company, he put enough pressure on shareholders to force AGL to withdraw plans to put the demerger to a shareholder vote and the board consequently resigned en-masse.
18 months on, the AGL share price is over $10, ahead of the $8.25 per share bid. On that basis, you might say the move to reject the offer ultimately worked out well for the company. But given the damage done to the company and the uncertain future it faces, we’re not so sure. If the company couldn’t reach pre-COVID highs with electricity prices at such high levels, it is difficult to see how else it can get there any time soon – especially given its high capex in the years to come.
3. The Reject Shop (ASX:TRS)
This takeover rejection occurred nearly 5 years ago now, but we think it is worth mentioning here. In late 2018, The Reject Shop turned down a $78m takeover bid ($2.70 per share) from Allensford, an investment vehicle of Raphael Geminder. The board turned it down.
‘The Reject Shop board continues to believe in the long term growth prospects of our business, which has remained profitable amidst the backdrop of a challenging period in the Australian retail environment,’ it declared.
5 years on, the company is trading at $5.70 per share. I think we can agree it all made the right call.
Ironically, the company’s $10.3m profit is lower than the $16m result five years ago. But this is up 63% from 12 months earlier and it seems investors welcome any retailer that can grow its profit in this difficult environment.
4. Altamin (ASX:AZI)
It is rare that a junior resources company turns down a takeover offer. Altamin owns the Gorno zinc project in Italy.
In mid-2022, it received a A$37.2m offer from VBS Exchange, part of the Victor Smorgan Group, working out at 9.5c per share. This deal was rejected arguing it was too big a discount to the project’s NPV of $211m.
Just over a year on and shares are at 6.3c per share … Yipee!
Yes, the company has made some progress in the last year or so. It delivered good zinc drilling results beyond the current Mineral Resource Estimate (MRE). It has applied for new licenses in Italy over reservoirs that are prospective for lithium and graphite and managed to get a PR shot with Italian government minister Adolfo Urso. But investors who’ve held since then are worse off now than they were then.
5. Tyro Payments (ASX:TYR)
What a saga this was. One of the nation’s largest EFTPOS operators had private equity firm Potentia Capital pursue it. Potentia first made a $1.27 per share bid in September 2022 that was rejected. 3 months later, it came back with a $1.60 per share bid.
Both times, Tyro argued the offer undervalued the company even in spite of pressure from institutional shareholders (including Wilson Asset Management and Mike Cannon-Brookes’ vehicle Grok Ventures).
‘Tyro remains open to engaging with any credible change of control proposal it receives that represents compelling value for Tyro shareholders,’ the board told shareholders.
‘Based on the board’s assessment of the company’s attractive growth prospects in the Australian payments and business banking markets, no such proposal has been received, and accordingly the board and management will continue to focus on executing on Tyro’s current strategy’.
Still, the talks continued and came down to do or die negotiations in April 2023 following due diligence. By May 2023, the board was expecting a $1.75-$1.80 bid, but Potentia decided to walk away following a financial update released during the week before depicting slower transaction growth.
As the AFR noted, babies were conceived and born in the time this saga drew on and on. Ultimately, both parties have nothing to show for it. At the time of writing, Tyro’s shares trades around $1.20 and Potentia had the embarrassment of spending months on a deal, only to walk away from it.
The lesson from all this
Clearly, you can never be confident a takeover deal will go ahead until it is signed on the dotted line. So, if a stock spikes due to a takeover offer that hasn’t been accepted, it’s probably best taking your chips off the table.
This is particularly the case if there is ‘due diligence’ to come following a takeover deal being revealed to shareholders. Because in a best case scenario, your money does nothing for a few weeks or months. But in a worst case scenario, the deal could fall through.
When a board rejects a takeover offer, a company’s best chance to create shareholder value is to deliver a solid financial performance. But even then, there’s no guarantee of success.
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