Australian Takeovers Essay

In Australia ATPs are prohibited. Masulis et al. (2007) found that acquirers with more ATPs earn lower announcement returns. However, Australian acquirers earn significant value both in terms of announcement returns and long-run operating performance improvements. Thus, Australian takeovers reflect real synergies as opposed to hubris or overpayment (Jenner and Powell, 2011).
ATPs protect managers from the market for corporate control, thereby stirring up agency issues and encouraging value-destroying acquisitions. Research shows ATPs do not cause managers to seek out value destroying takeovers, instead, causes managerial hubris. Both hubris and overvaluation significantly reduce CARs (Jenner and Powell, 2007).

Defensive tactics are used

Demerger Distribution Transaction
• Selling TPM shares at a substantial profit of over $900 million to SOL Shareholders on a deferred tax basis.
• All shareholders of SOL will get pro-rata proportion of the TPM shares.
• Improved liquidity position as shareholders can choose to hold, buy more or sell their TPM shares on ASX.
2. Cancellation of Shares Transaction
• Consideration represents substantial premium on SOL's share price.
• Reduced undervaluation attributed to cross-shareholding structure.
• Increased liquidity and a broadened shareholder base.
• Greater transparency facilitating attribution of value to SOL.
• Improved overall corporate governance and monitoring.
However, ATO has denied demerger roll-over relief for TPG share demerger proposal by Soul Patts. Following this rulings, it appears to Brickworks that the TPG Demerger and the share cancellation transaction are unable to proceed as it carries huge cost burden.
Brickworks estimates that WHSP, of which Brickworks is a major shareholder 42.7%, may have had to pay approximately $313m of capital gains tax on disposal of its TPG shares; and would have had to pay significant income tax on the unfranked dividend component of the TPG

It also aims to eliminate negative synergies and to ascertain that the asset is a better fit to the business activities for a buyer. The assets that are sold may be a division, segment, subsidiary, or a product line. In return, the seller typically receives cash, or securities or a combination of both.

There are different motives for divesting an asset or division:
1. A firm may divest a division to increase focus.
2. Divestitures generate funds for the firm which they can invest in other profitable activities.
3. A firm's "break-up" value is sometimes believed to be greater than the firm's value as a whole.
4. Divesting an asset may enhance firm's stability.
5. Divesting may eliminate a division which is underperforming and contributing to firm's undervaluation.
6. There could be governance issues as regulatory authorities may demand divestiture, for instance to enhance competition.
7. Stockholders may press for social reasons or managerial compensation could be attached to the divestment