Feature:Aussie firms get urge for a merger

By STEPHEN SHELDON, UPI Business Correspondent

SYDNEY, Jan. 21 (UPI) -- As a kid, I was forever intrigued by the cover of one of my parents' books which featured a cartoon of a lascivious looking couple eyeing each other in bed. The book was called "Care for a merger?"

Well, after a quiet year, Aussie firms are again saying, "Yes, mate!"


A sharp spike in mergers and acquisitions activity since December has triggered a big lift in the share price of target companies, and left law firms, merchant banks and shareholders rubbing their hands together.

The prospective mergers and acquisitions total some $13 billion -- representing over 40 percent of the total deals completed in 2002.

"We have been very pleasantly surprised with the way things are heading," Bob Santamaria of the law firm Allens Arthur Robinson, said recently.

But some are beginning to question the motivation of some of the predator companies.


"You can't help feeling sometimes that these deals are fuelled more by ego than rational decision making -- from an executive's point of view, it is more exciting to be part of a big aggressive company," Ted Rofe, chairman of the Australian Shareholders Association, told United Press International.

Some of the potential mergers and acquisitions include the cream of Australian companies.

The deal capturing most attention this week concerns the 'friendly discussions' between U.S.-based wine, beer and spirits group Constellation and BRL Hardy, Australia's third biggest wine maker. If consummated, the merger or acquisition (it's still unsure which) would create the world's biggest wine business with annual sales of nearly $2 billion.

The two companies currently operate a successful joint venture, Pacific Wine Partners, which markets BRL Hardy wines like Banrock Station, Hardys and Leasingham, in the United States.

Constellation has made a scrip or share offer which values each BRL share at $6.10, a staggering 52 percent premium on BRL's November price. Clearly, the Yanks are keen.

BRL says the offer has the unanimous support of directors. Constellation's chairman and chief executive officer, Richard Sands, is due to start selling the deal to investors in Sydney this coming Monday. At this price, many shareholders won't need much arm-twisting. You can already hear the champagne corks popping.


But the deal is far from a fait accompli, particularly with Constellation's already high debt level -- its gearing is up over 200 percent -- and its ability to consummate is under question. Rumor has it that if the deal falls through, there may be other overseas interests keen to buy BRL.

The BRL-Constellation deal follows a string of moves. Before Christmas, Swiss-based Xstrata made a bid for miner MIM. Since then, Burns, Philp & Co has made a hostile bid for baker Goodman Fielder; Australia's biggest gaming company, Tabcorp, has made a bid for casino operator Jupiters; and our largest dairy exporter, Murray Goulburn, has put dairy producer Bonlac in its sights.

Meanwhile, there is increasing speculation that Rio Tinto is lining up to take over WMC Resources, and that Alcoa is lining up Alumina.

The prospective deals have sent the share prices steepling. Goodman Fielder and Jupiters are at three-year highs, while MIM is at a 52-week high.

So, why the sudden surge in M & A activity, particularly given these seemingly uncertain times? I mean, the drums of war are beating, and Australia is one month into a full terror alert.

According to JP Morgan's Nick Burt, with the local market having been sold down over the past year, some stocks are starting to look cheap, and acquisitions are an avenue for the bigger players seeking growth in their largely mature markets. End of story.


"If a deal is earnings per share accretive, it's worth looking at," Burt told UPI. "In terms of a possible war, companies are not even considering the macro environment."

So far, the bids have largely been hailed as win-win deals.

Only a few people, like shareholder activist, Stephen Mayne, whose Crikey Web site campaigns for the rights of the little guy, are questioning the overseas interest in Aussie companies.

"Australia has one of the most concentrated corporate sectors in the world, and from a consumer point of view I would caution that the spate of takeovers will further entrench the big end of town," Mayne told UPI.

"Sure, increasing consolidation is part of a global trend, but Australia is leading the world in this regard. It's a bit sad that in the wine industry, where Australian companies have excelled on the foreign stage, two of our big four companies could soon be foreign owned (Orlando was swallowed by Pernod Ricard last year)."

Mayne said that Australia has already seen major foreign ownership of our mining, hotel, white goods, oil and consumer goods industries. Today, according to Crikey research, there are over 200 foreign companies turning over in excess of $24 billion in revenue in Australia.


Ted Rofe also issued a word of caution. "Academic research has found that while these deals are usually a win for the shareholders of the target companies, that's not the case for shareholders of the predator companies," he told UPI. "Often, the predators pay too much, or experience integration difficulties."

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