FOREIGN bidders are offering higher prices for Australian takeover targets than domestic bidders, with Chinese buyers offering the highest premiums.
A recent review by the law firm Corrs Chambers Westgarth of mergers and acquisitions last year also reveals that while, not surprisingly, the mining and metals sector was home to most activity, the biggest windfall when it came to premiums was in the software and services sector.
The report found the average premium paid by foreign bidders - the difference between the final price and the share price at the time of the takeover announcement - was 47.5 per cent. Predominantly foreign bids were cash only, with cash king in 90 per cent of offshore offers. Australian bidders paid an average premium of 43.5 per cent, and 75 per cent of the offers involved scrip as all or part of the deal.
The report noted that Chinese bidders paid the largest average premiums (48 per cent), while offshore bidders from the US and Britain paid an average 36 per cent, and bidders from south-east Asia paid an average premium of 28 per cent.
Chinese bidders are understood to pay above the odds to sweeten their bids, which are conditional on them getting approval for foreign investment from the Chinese government.
The average deal value for foreign bidders was $1.1 billion, compared with $322 million for domestic deals, the report says.
But while the metals and mining sector accounted for nearly 41 per cent of all merger and aquisition activity, it did not generate higher premiums for resources stock. The average premium was 42 per cent - well behind the "hot stocks" of software and services, which recorded 67.5 per cent.
The software and services sector was closely followed by high premiums for real estate investment trusts and diversified financials. One of the steepest premiums paid, albeit on a low 5? base, was the 227 per cent premium for iSOFT by the Australian subsidiary of Computer Sciences of the US.
The US was the dominant investor in software and services, comprising 60 per cent of all foreign interest. China was the largest investor in mining and metals, accounting for 44 per cent.
The review found that private equity - which accounted for 7 of the 61 merger and acquisitions deals last year - paid even higher premiums, averaging 65.8 per cent. It was not active in the metals sector, but operated in real estate investment trusts, media, software and services, utilities and transportation. Private equity bidders had a success rate of 86 per cent, while non-private equity bids were successful 85 per cent of the time.
The report said the Foreign Investment Review Board did not block any deal announced last year (the blocked $8 billion merger between the Singapore Exchange and the Australian Stock Exchange fell in the 2010 year). Only SABMiller's aquisition of Foster's had conditions imposed on it by the board.
Frequently Asked Questions about this Article…
What did the Corrs Chambers Westgarth report find about foreign bidders and Australian takeover premiums?
The report found foreign bidders paid higher takeover premiums on average than domestic bidders. Foreign bidders paid an average premium of 47.5% (the difference between the final takeover price and the share price at announcement), while Australian bidders paid an average premium of 43.5%.
Which countries paid the highest premiums for Australian takeovers?
Chinese bidders paid the largest average premiums (about 48%). Bidders from the US and Britain paid around a 36% average premium, and bidders from south‑east Asia paid about a 28% average premium.
Which sectors generated the biggest takeover premiums in Australia?
Software and services showed the biggest premiums (about 67.5%). Real estate investment trusts and diversified financials also recorded high premiums. By contrast, the metals and mining sector accounted for nearly 41% of M&A activity but had an average premium of about 42%.
How do foreign takeover offers differ from domestic offers in cash versus scrip?
Foreign bidders tended to make cash-only offers in most cases — about 90% of offshore offers were cash. Australian bidders more often included scrip, with roughly 75% of domestic offers involving scrip as all or part of the deal.
How do average deal sizes compare between foreign and domestic takeover bids?
The average deal value for foreign bidders was approximately $1.1 billion, compared with about $322 million for domestic deals, according to the report.
What role did private equity play in takeover premiums and success rates?
Private equity accounted for 7 of the 61 deals in the review and paid higher average premiums (about 65.8%). Private equity was active in REITs, media, software and services, utilities and transportation. Private equity bids had an 86% success rate, versus an 85% success rate for non‑private equity bids.
Why do Chinese bidders sometimes pay higher-than-average premiums?
The report noted Chinese bidders often pay above the odds to sweeten offers that are conditional on securing approval from the Chinese government for foreign investment, which helps make their bids more attractive despite approval hurdles.
Did the Foreign Investment Review Board (FIRB) block any takeover deals in the review period?
No — the review found the FIRB did not block any deals announced in the year covered by the report. The review noted a past blocked example: the proposed $8 billion merger between the Singapore Exchange and the Australian Stock Exchange was blocked in 2010. It also noted that SABMiller’s acquisition of Foster’s had conditions imposed by the board.
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