Bleeding stalwarts lure foreign predators

Investors need to think fast as the recession offers rare takeover opportunities to overseas predators.

Is it a coincidence that we have a rush of overseas players piling into our market at the one time? Within four working days we heard that two of the stalwarts of the ASX, Coca-Cola Amatil and AMP, are now takeover targets.

Talk about timing.

Until very recently the greatest defence some of our bigger, less impressive companies could mount from takeover was not a strong operating performance, rather it has been an expensive share price.

Now with a recession taking its toll and a sharemarket drifting in the lead-up to the US election, the overseas predators smell blood in the water.

For local shareholders — and there are 730,000 shareholders in AMP alone — the issue will be whether to hand over these companies at what may well turn out to be cheap prices.

Just now it looks like both of these bids could go through unchallenged, but economic conditions can change quickly.

It’s the classic playbook — the overseas players are moving on cashflow-rich Australian companies when they believe things are about to get a whole lot better.

In fact, we’ve seen it before. As Australia climbed out of recession in the mid-1990s, storied companies got picked up easily as value was depressed. In 1995, two other great Australian brands were whisked off the ASX — miner CRA went to London-based Rio, and financial services group ­National Mutual went to Paris-based AXA.

Consider this: last Saturday afternoon, I got the weekly edition of Barron’s, the US investment magazine, in my inbox. (It’s owned by News Corporation, publisher of The Weekend Australian — yes, a complimentary subscription!)

Every week the US investment publication goes with a big theme on its cover. This time — curiously — it was the coming rebound for Coca-Cola: “Why Coke Stock Could Pop — When the pandemic starts fading, Coke should be ready to make up for lost time”.

Then on Monday morning Australian time the news hit: Coca-Cola European Partners was making a $9bn takeover bid for our locally listed Coca-Cola Amatil. The stock has been going nowhere for years, the bid was at $12.75, a conventional 23 per cent premium to the recent stock price.

Across the market, the initial reaction seemed to be Australia should be lucky to get an offer at all.

Well, not to anyone who was familiar with the wider world view of Coke and its future prospects. As Lauren Liberman at Barclays New York put it: “Coke is a great recovery play going into 2021.”

Of course, our locally listed Coke operations are not mirror businesses of the US, and Amatil is a big bottling operation, but the point stands — Coca-Cola and its associated enterprises are perfectly poised to recover when the world’s hospitality business fully reopens.

By the end of the week at least three leading fund managers had come out calling for a higher bid, with speculation Coca-Cola Amatil is worth $14 or higher.

Now of course we have not had time yet to gauge reaction to the bid for AMP that was confirmed midweek: in fact, we do not even know the price California-based Ares Management might put on the table.

Suffice to say, AMP last traded before the news broke at $1.28. On Friday the stock jumped almost 20 per cent to near $1.50 and the final bid is likely to be near $1.85.

Before the Ares announcement, the market had valued AMP at $1.75 tops (that’s the target price from Credit Suisse — former employer of current CEO Francesco De Ferrari).

But the vast bulk of AMP shareholders — who got their shares at $6.19 in the demutualisation 22 years ago — will wonder how on earth recent management regimes got it so wrong.

The AMP under assessment from Ares Management is struggling as funds flow out the door, legal actions pile up and its antiquated model of financial products sold by tied planners is under pressure.

Yet AMP still sits in a sweet spot in local financial services as a major superannuation player in a rich system where at least 9.5 per cent of every pay packet is mandated to flow into super funds.

Once either of these bids are ­finalised, the target companies are likely to “unanimously recommend’’ the offers. While some of the institutions that hold the stock will also be keen to do a deal: this will be the case even if AMP was to be broken up into parts.

But wealth advisers suggest if you are a shareholder in either of these targets, keep your powder dry. Don’t accept any offer until the latest possible bid in the takeover period: a better offer or a ­better future should be possible for either stock.