Lew plucks tool from Packers' bag of tricks with Premier's revised offer

Solomon Lew's decision to add two lumps of sugar to his takeover bid for Just Group and make the second lump conditional on getting 90 per cent represents a second roll of the dice for advisers on both sides.

Solomon Lew's decision to add two lumps of sugar to his takeover bid for Just Group and make the second lump conditional on getting 90 per cent represents a second roll of the dice for advisers on both sides.

Lew's takeover vehicle, Premier Investments, is being advised by UBS investment bankers, including Tim Antonie, who in 2004 was in the UBS team that advised the Packer family's PBL on its takeover offer for the Burswood casino. Burswood's defence team included Caliburn's Ron Malek, who is also advising Just on its defence.

And in 2004 PBL successfully deployed the device that Lew has just launched.

Its initial offer was rejected by Burswood, partly on the strength of a higher valuation of the shares by independent expert Lonergan Edwards (which, to extend the coincidence, is underpinning Just's defence with a report that asserts that Premier's offer is neither fair nor reasonable).

PBL then announced that it would pay 6c a share more for Burswood - but only if it reached 90 per cent. The key stake was one of about 7 per cent held by Paul Moore's PM Capital, which was big enough to frustrate the 90 per cent target, and once it became clear that Moore was accepting, Burswood recommended that shareholders accept.

Whether Lew's use of the same tactic will be successful remains to be seen, but there's no doubt that it creates both a carrot and a stick.

Premier has committed, with conditions, to bump the cash component up by an effective 4.5c per Just share by extending Premier's just-declared June-half dividend to shares issued to Just shareholders who accept by August 6. The caveat is that this will only occur if Premier wins enough acceptances to carry it from about 25 per cent now to more than 50 per cent.

Lew says that, on the basis of feedback from shareholders, 50 per cent-plus is now highly likely, and that's controversial: ASIC watches statements by bidders about shareholders' intentions closely, because they can affect the bid outcome.

It's unclear whether Just's two 10 per cent shareholders, Barclays International and Axa, are now more inclined to sell, and Lew may be alluding to other potential sellers, including hedge funds that own 8 per cent, and an unidentified holder of just under 5 per cent.

And if Premier gets past 50 per cent, it is also undertaking to pay another 15c per share cash if it gets past 90 per cent.

Just said late yesterday it was still evaluating the move, but it noted the "core offer" had not been improved.

But Just also knows now that a continued aggressive defence will be working to frustrate the "bonus" payment of 15c that would almost inevitably flow if it recommended acceptance.

The feedback Just gets from its shareholders on this issue will be critical, and the fulcrum is cash.

Lew wants to deepen Premier's share base by importing Just shareholders, and the offer has looked progressively better in recent weeks because (as Lew anticipated at the outset) retail conditions weakened - something confirmedby Just at the start of this month, when it substantially downgraded its earnings outlook.

The problem was Premier was offering not just cash but shares, and for at least some of Just's bigger shareholders, the swap into a company that Lew would still firmly control was undesirable.

Yesterday's changes respond to that issue with more cash. Potentially, accepting shareholders will get up to $2.29 cash - which is 79 per cent of Just's share price ahead of Premier's rejig, and still 70 per cent after yesterday's 38c jump in Just's share price to $3.29.

Premier's own share price of $7.10 implied another $1.77 of value, taking the potential total to $4.06 - beneath Lonergan Edwards's assessment but comfortably above Just's share price. The ACCC's statement of issues about the proposed Westpac-St George merger raises no serious obstacles.

There are basically no concerns about the combination of the various banking elements of the two franchises. The commission has questions about the possible combination of St George's Asgard wrap platform with Westpac's BT wrap platform, but the rest of the funds management business does not raise competition issues, and any issues concerningwraps should be easily settled.

If there is a distinct market for wrap platforms, Westpac's BT is No.1 with a three-year funds flow of $35 billion. Macquarie is No.2 with $28 billion and St George's Asgard is a distant third, with $11 billion.

But wraps are really just a modern iteration of the superannuation master fund, providing gateways to multiple managers, and administrative support, including unified reporting.

The ACCC is asking if wraps and master funds are exchangeable in competition terms. If they are, there are no competition issues, because the total market is diverse and also deep. In the last three years $87 billion of funds have flowed through wrap platforms. In the same time $287 billion has flowed through master funds.

Even if the ACCC found there was a competition issue after further soundings, it would be easily fixed. Worst case, St George's wrap platform would go out of the deal (its master fund platform, which is twice as big, would not be a problem, as mentioned). Second worst case, the two platforms could be run parallel, instead of fully merged.

Whatever happens, it is no deal-killer: the union is about banking synergies, and the deal clincher will be the final handshake on takeover terms.


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