THE DISTILLERY: Pacific blues

Some commentators have suggested that Pacific Equity Partners could simply grab Spotless Group with a hostile takeover offer. If this was Fred Zinnemann's 1951 classic High Noon, 68-year-old Spotless Group chairman Peter Smedley is Marshall Will Kane, in the twilight of his career, having to stare down the Miller Gang on his own. But one commentator has had a look at the pre-bid agreements that PEP has entered into with existing Spotless shareholders and found that a hostile offer is not a weapon at their disposal, which goes some way to explaining the private equity player's initially perplexing 'bear hug' strategy. Another writer says the whole Spotless episode has brought home the fact that laws governing takeover bids and schemes of arrangement need to be harmonised, while another takes the time to explain BHP Billiton's $US3 billion bond issue, given that it's not exactly short of cash.

First we start with The Australian's Bryan Frith, who explains that PEP's investment mandate requires it to conduct "customary” due diligence and because its scheme of arrangement, coupled with its bear-hug strategy, demands the cooperation of the target's board, a hostile bid is not on the cards.

"Bear hugs are a more effective target when the prospective bidder is able to go directly to the shareholders with a hostile bid if it is refused diligence. That was the case recently with SABMiller's successful takeover of Foster's. It first proposed a scheme at $4.90 a share, converted it to a takeover at the same price after Foster's refused to engage and won a recommendation (and converted back to a scheme) with an increased offer of $5.5235 a share. A hostile bid is not available to PEP so it has to rely on pressure from shareholders to convince the Spotless board to allow due diligence to be undertaken.”

The Sydney Morning Herald's Malcolm Maiden expands on concerns that Frith has been touching upon recently about a potentially unfair emerging M&A trend amongst suitors, though Maiden calls for reforms to bring the rules governing takeovers and schemes of arrangement into line.

"In takeovers, a bidder cannot move to compulsorily acquire shares it has not won until acceptances have passed 90 per cent. For companies that have been around a while – including Spotless, which was founded just after World War II by Melbourne's McMullin family and began taking its current shape as a catering and cleaning services group in the 1970s – 90 per cent is a stretch, difficult to complete, and difficult, therefore, to finance. There is just too much scrip in the hands of shareholders who have stopped paying attention. What it means, however, is that takeover price negotiations are increasingly being negotiated in unlit space.”

The Australian's Matthew Stevens was at BHP Billiton's annual general meeting in Melbourne and, while the columnist acknowledged the darkening mood of the miner's senior executives on the global economic outlook, he thought it best to also explain the curious decision by BHP to launch a $US3 billion bond issue.

"Why is a cash machine like BHP raising debt? It maintains that these sort of issuances are about maintaining its brand in the US capital markets. But there is more to this. BHP is getting funding at a substantial discount to long-term trend and will be paying substantially less than it would earn on any cash it might keep on deposit through this financial year and beyond. What's more, you can bet BHP's internal inflation rate is something a fair bit higher than the top interest rate here, so in real terms it will actually be paying back less than it borrows at rates like those locked in yesterday.”

Switching back to the Spotless bid to round out the commentaries and The Australian's John Durie has his eye on a potential, as yet unnamed, rival bidder emerging, while the Australian Financial Review's Chanticleer columnist Tony Boyd finds some very irate shareholders on the target's register.

Meanwhile, The Age's Barry Fitzgerald also picked up on the far more cautious mood of the BHP meeting and points out that it's noticeably darker than the tone struck in London less than a month ago.

Staying with company news for a moment, and The Australian's Criterion columnist Tim Boreham is inclined to believe Northern Star Resources' claims that it now boasts one of the richest gold mining results in Australian history. Fairfax Insider columnist Ian McIlwraith takes a look at Uranex chairman Johann Jacobs who almost presided over two remuneration report knockbacks in one day.

Finally, the Sydney Morning Herald's Michael Pascoe says the Gold Coast really shouldn't get excited about the Commonwealth Games from a financial standpoint because the gold is only ever found by a handful of lucky athletes, not the hosts, while his colleague Elizabeth Knight takes on the Minerals Resource Rent Tax.