2007-12-13 Busted Brambles tilt shows takeovers on the nose
Two pieces of news today underlined again how the markets have turned against takeovers in recent months.
In Australia, the Toll Holdings spin-off, Asciano, has announced that it has given up its quixotic tilt at Brambles, and no longer considers the 4.1% stake in Brambles it acquired this year to be a long-term strategic holding.
Asciano chief executive Mark Rowsthorn said the Brambles play had been terminated by the board as part of a strategic review.
That review would have included a sober assessment of what was, in effect, a bull market takeover proposition overtaken by the new environment, where debt costs are higher, and private equity players as a consequence much less active as takeover players and potential bid partners.
Asciano was also not helped by the fact that not many saw compelling logic in a move on Brambles. There are potential synergies between a combination of Brambles and the Toll transport group that Asciano spun out of last June, and Toll continues to harbour ambitions.
The synergies in the combination of Brambles and its pallets business with Asciano's ports and rail assets were less obvious to investors, as the decline in Asciano's share price from a high of $11.43 in June to a low of $7.15 a week ago attested.
The second pointer to the new market environment came overnight, when the Blackstone private equity group said that rumours that it was putting together an offer for Rio Tinto to counter BHP Billiton's merger proposal were untrue.
Responding to a report from London that it was teaming up with Chinese investment funds for a bid and was already recruiting lawyers and other advisers, Blackstone was emphatic, saying it was not involved in the transaction "in either an investment or advisory role."
The reality is that any group is going to have trouble countering BHP's all-share merger proposal. BHP is best able to offer shares because it has a dual listed company structure that mirrors Rio's.
Cash counter offers would need to be funded to the tune of $US150 billion-plus to counter BHP's merger proposal, a financial mountain higher than any climbed by takeover bids before.
Blackstone's private equity funds could have accounted for only a tiny fraction of that amount - probably less than $US10 billion - and as the global securitised debt market crunch continues, the entire private equity industry is struggling to find debt to match the equity from investors that it can use in bids.
Rio, meanwhile, has turned up the heat on BHP, by approaching Britain's Takeover Panel overnight and asking it to invoke UK takeover rules and require BHP to either turn its rejected proposal into a formal offer or walk away.
BHP will negotiate with the panel about Rio's request, but the panel is likely to start the clock ticking, effectively putting a two-month deadline on BHP to either put up or shut up for another six months.