Seven Group’s Ryan Stokes now controls over 41 per cent of Boral and if the market is right, by this time next week he will be closer to 50 per cent.
He is doing so despite paying no control premium and at $7.40 a share is buying the company at 20 per cent below the perceived fair value for the company, according to independent expert Grant Samuel.
In the next four weeks Treasurer Josh Frydenberg will circulate a law reform proposal to give the Takeovers Panel more control over schemes of arrangement to simplify the rules and remove unnecessary court intrusions.
There is a clear case now for including a proposal to impose a requirement that all bids have a 50 per cent minimum acceptance condition.
This means if you bid for a company you can’t buy less than 50 per cent.
As events transpire Stokes will probably pass that threshold in any case with a bid which has zero minimum acceptance conditions.
As noted earlier, if he gets to 50 per cent before next Thursday the bid will be automatically extended for another two weeks.
Some argue Boral is a special case but the fact is that after the company sold its US business for $2.9bn and ahead of the planned sale of its fly ash assets for at least $1.1bn, Stokes is buying a company with more than $3 a share in cash, which is at his discretion.
It is a gold mine of enormous proportions and good luck to Stokes because he has exploited the legal loopholes and crept over the 20 per cent takeover threshold and then made a bid.
By setting no minimum acceptance conditions Stokes, who then had 23 per cent acquired at $4 a share, was hoping to get to 35 per cent but was taking a risk he would get more.
Boral’s actions have played perfectly into his hands.
On Tuesday Boral acquired 18 million shares at $7.40 a share as part of its 10 per cent buyback.
This will help boost Seven Group’s stake in the company.
The asset sales mean he has cash to play with, either by returning cash to shareholders or using it for other acquisitions.
There is nothing like playing with other people’s money.
Most bidders nominate minimum acceptance conditions because they want to get control for synergistic reasons orders, which Stokes didn’t care about, and as events have transpired he has got cash instead by the truckload.
That said, Stokes will own at least 45 per cent of the company and probably more.
This exploited the knowledge hedge funds would see a good trade in selling at $7.40 and buying back when the bid closes at $7.20 or above.
This depends on whether anyone wants to be a minority investor in a Stokes-controlled company.
The rationale for minimum acceptance conditions is to preserve the principle that all shareholders be treated equally.
Some reject the argument, saying the last thing Australia needs is control on takeovers.
There is also an argument that shareholder creeps be abolished.
This was last examined in 2012 when Gina Rinehart was climbing the Fairfax share register but didn’t get past the discussion stage.
Perhaps it may now be looked at again.
Investment firm Tanarra has argued Boral should have imposed conditions on Stokes’ requests to be a board member, but this is rejected on the grounds it would not have been accepted.
Maybe Stokes is just very lucky but he has taken the risk and with advisers Barrenjoey the cards have fallen into place perfectly .