Once again the likely lads at Macquarie Group/Bank have promised much to the market (via the in house journal, the Australian Financial Review) and once again they have failed to deliver.
They did it in the very controversial takeover battle for Patricks in 2006 when Macquarie appeared late in the day with an “offer” that would top that on the table from Toll Holdings, and failed. Then there was the failed tilt at Qantas, made by Macquarie and a bunch of private equity sharks, with the very active support of Qantas management. It failed (a good thing for Qantas and Australia).
Yesterday Macquarie were embarrassed when their ham-fisted attempt to gazump the China Minmetals’ cash offer for assets in OZ Minerals, fell over, again in an embarrassing fashion.
Macquarie’s wasn’t the only last minute attempt to gazump China Minmetals: a group called RFC, backed by a Canadian bank, put up a debt-laden offer (which masqueraded as equity via convertible bonds with highly advantageous conversion rates for RFC and its mates). The OZ Minerals board, scared and scarred by the recent near death experience at the hands of a bunch of crazed banks, led by one French major in particular, said no.
Macquarie couldn’t or wouldn’t sign off on a $A1.4 billion, three month bridging loan to OZ to allow its proposals to be considered and the nervous bank repaid. When a carpetbagger like Macquarie can’t support its own proposal, what was the point in making it in the first place? That’s a point that slipped by the AFR this morning.
So now OZ shareholders will approve the offer from Minmetals at today’s meeting, especially after it topped its original $US1.2 billion cash offer for the assets by throwing in another $US186 million last night. That maintains the original value in Australian dollars at around $A1.75 million and which had been eroded since April by the rise in the value of the Australian dollar to 80 US cents.
Hopefully OZ shareholders (the small ones in particular) will give chairman Barry Cusack a bagging at the meeting today for the way the board and management allowed company came close to dying within six months of the merger between Zinifex and Oxiana. It’s now clear the board and senior management had no idea of the impact the falling price of lead, copper and zinc was having on its debt and overall financial position from September onwards.
The true debt situation was consistently underplayed; Oxiana founder, Owen Hegarty was paid to leave in a disgraceful way after shareholders had indicated their strong opposition to his exit package, and the company came very, very close to going under.
As the company struggled to save itself from its own ineptitude and the pressure from the banks, Macquarie and RFC were nowhere in sight with their recapitalisation plans.
OZ Minerals’ situation was too fraught with danger and the fear of collapse was high until China Minmetals was found as a white knight with a takeover offer. That was made, and it steadied the company, and then the share price when they were relisted.
As metal prices starting rising, so did the OZ share price. Then the Federal Government rejected the Minmetals bid on the basis that the key asset, the $A1.2 billion Prominent Hill mine was too close to Woomera: national security grounds were suggested … but coming as it did with the opposition to the Chinalco-Rio deal, the Rudd Government found a bolt hole to avoid approval and rushed it.
That forced a re-working as the loony French banks made noises about getting their money and Prominent Hill was excised from the deal, and the price lowered to $US1.1 billion. Still no sign of RFC and Macquarie.
But the surge in world metals prices (helped by Chinese buying for state stockpiles) saw copper, lead and zinc all rise, while gold jumped on the usual fears of gold bugs about inflation and the end of the world.
Suddenly OZ Minerals was looking better, the Prominent Hill mine was rediscovered as the best new metal asset in the country and brokers and others started writing nice things. The Federal Government’s rejection of the first offer had left OZ in a far better position than it first seemed. It would have around $300 million or more in cash after the sale to China Minmetals, would have control of Prominent Hill and had been given a second chance to do something.
It was in mid-May that rumours emerged of other interest (some of these blokes in the investment banking/takeover industry are slow out of the blocks). Then, like a carpetbagger from post Civil War America, the gazumpers emerged, selectively briefing media to build pressure on the OZ board, with the intention of lobbing a late, highly complicated and conditional bids to force today’s meeting to postpone a decision on the China Minmetals deal.
Good business tactics yes, but courageous? Hardly. Both attempts were in reality private equity based with high levels of debt, or quasi-equity that would cost shareholders tens of millions of dollars a year and replace the stupid banks with a bunch of greedy, short term investors (who would be financing their money from banks anyway).
It seems RFC and its backers and Macquarie still don’t understand that debt and gearing is so 2007. Cash and conservative financing is the name of the game. If they had had the cash, they should have put it on the board to enable shareholders to make a realistic comparison. China Minmetals would have departed, leaving RFC and or Macquarie with offers/deals on the table for increasingly desperate shareholders to grasp.
It’s clear neither had or wanted to offer cash or had the cash to offer and devised structures that effectively borrowed the cash from the company and shareholders future earnings and dividends. That’s so very 2007, so very Macquarie Bank, that it was bound to fail.
So next time there’s a takeover situation and there’s talk that Macquarie might make a late offer (read The AFR to find out), have a good belly laugh. The millionaires can’t get it up any more (and couldn’t to top the Toll offer, which has, of course, ended in tears for all concerned with Asciano on the block, if anyone is really interested).
And that’s the warning for OZ shareholders: complex deals promise uncertain futures in these de-leveraging days.