Peter Costello surprised nobody
earlier this month when he approved the $9.2 billion cash BHP-Billiton
takeover of WMC Resources with minimal conditions. Why would he oppose
something that provides an estimated $600 million capital gains tax
windfall for Canberra?

While the WMC Resources board sold their
shareholders out by failing to negotiate a scrip alternative to the
biggest cash bid in Australian history, dissent is growing in the
community and among WMC Resources given the huge job losses and big tax
bills that will flow.

Colourful pollster Gary Morgan yesterday released this poll
which produced surprisingly negative outcomes for the Big Australian as
64% of those polled couldn’t see any advantage from the takeover and
41% said they had concerns. So much for BHP-Billiton being the
nationally-acclaimed white knight saving our WMC damsel in distess from
the evil Swiss raiders.

Here’s a prediction: BHP-Billiton will
struggle to get the 90% acceptance level by the time its offer closes
on 6 May 6 – just four days before Peter Costello reveals just how
over-taxed the nation really is in the 2005 Federal budget.

Investors
around the world prefer scrip mergers because it usually provides CGT
rollover relief. In fact, I’m struggling to come up with many all cash
takeover bids that exceed the $9.2 billion being offered by
BHP-Billiton. The big one, of course, was KKR’s leveraged buyout of
Nabisco and this was about US$20 billion in cash all the way back in
1989 as you can see from this interesting blurb about the subsequent movie that was made, Barbarians at the Gate .

After
that, it gets more difficult because the following global mega-mergers,
in which the smaller company valuation is listed, all tended to be
scrip deals:

Time Warner and AOL: US$165bn
Exxon and Mobil: US$80bn
Glaxo and Smithkline Beecham: US$76bn
JP Morgan and Bank One: US$58bn
Proctor & Gamble and Gillett: US$57bn
BP and Amoco: US$53bn
ATT and TCI: US$48bn
Daimler-Benz and Chrysler: US$38bn
Worldcom merger with MCI: US$37bn
Zeneca and Astra: US$34bn

Corrections and additions to [email protected]

Peter Fray

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