KEY POINTS:
If ever there was a good example of the wisdom of ignoring company directors and holding out against a takeover bid it was yesterday, when Ironbridge Capital made a fresh offer for the remainder of MediaWorks.
Keen to mop up the minorities and take the television and radio
company off the sharemarket, Ironbridge offered $2.68 a share for the 17 per cent of shares that investors hadn't sold. So by holding on for a little under two weeks, a few shareholders earned 15 per cent above the $2.33-a-share offer made by Ironbridge in its first takeover.
For Brook Asset Management, with an 8.7 per cent stake, that translated into a $6.8 million gain.
From the outset when Ironbridge announced it was buying Canadian media company CanWest's majority stake in MediaWorks, Brook had been careful not to declare its position on whether it would accept the offer.
In hindsight, it's clear that Brook - led by Simon Botherway - didn't want to take too many other investors along for the ride.
What's interesting about that strategy is that it's a game only a handful of investors can play.
The fewer shares held by minority investors, the more likely an acquirer will be to try to mop them up and the higher the price they're likely to pay.
So Ironbridge was prepared to pay Brook and the other minorities $2.68 a share, compared with the $2.33 a share in its original takeover bid. And because there were fewer than 20 per cent of shares left on the market, it only pushed the average price paid by the Australian private equity firm up to $2.39 a share.
Brook's strategy paid off handsomely and probably more quickly than even it had been expecting, because it had a couple of things go its way.
First, the fact that another Australian media owner was sniffing around looking to acquire Brook's stake gave Ironbridge the hurry up. It had no time to waste if it didn't want to be stuck with other minority shareholders.
Second, funding for private equity deals is harder to come by now as a result of the subprime mortgage market meltdown in the US - look at all the private equity funds which suddenly dropped out of the bidding for Australian retail giant Coles a couple of weeks ago.
The funding squeeze has caused banks to become more cautious and probably meant that it was more important for Ironbridge to get 100 per cent of MediaWorks than it had been before.
Even so, Ironbridge did well getting the shares at an average of $2.39 each. The Grant Samuel report valued them at $2.26 to $2.59, so Ironbridge has still paid below the midpoint of $2.42 a share to gain entire control.
And Brook and a handful of other minority shareholders did very well, waiting less than two weeks and being rewarded with a price above the valuation range.
Those who missed out were the shareholders who sold into the first offer.
The independent directors of CanWest MediaWorks, as it was called until recently, advised shareholders to accept the offer from Ironbridge.
In the target company statement, the committee of independent directors said it was unlikely Ironbridge would make a new, higher offer and warned about the dangers of holding out.
"While it is possible that [Ironbridge] might elect to increase its offer price or close the offer and issue a new offer ... the committee notes that such speculation needs to be measured against the downside risks for MediaWorks shareholders and MediaWorks optionholders of not accepting an offer price that is inclusive of a premium for control and secured after a contested sale process."
The gains made by the MediaWorks minority shareholders are the latest example of the benefits of holding out against an initial takeover bid.
The investors who turned down Toll Holdings' $1.10-a-share bid for Tranz Rail four years ago were rewarded for their patience this month when they received $3 a share from the Australian transport company.
And even Graeme Hart - one of New Zealand's sharpest wheeler-dealers - had to fork out more to buy out the minority investors in Carter Holt Harvey. Those who didn't budge got $2.75 a share - 10 per cent more than those who sold out quickly.
In both of these instances, the independent directors advised shareholders to accept the bid. Those who ignored them did better.
* Christopher Niesche is Herald business editor
