kennas said:UGL, WOR or DOW.
Just plucks really though.
The theory is that with the current tighness in the labour market and dearth of mining equipment availability the only way to really grow it to bolt on companies with already good contract books and integration synergies.
I'm actually surprised there hasn't been more M&A in the mining services sector. Perhaps they've all just been too busy lapping up all the work they've ben getting the past 3 years.
dubiousinfo said:It would be hard to see BOL go after PCG. Crane hire & saffold hire are like chaulk & cheese. I think there would be other targets for BOL that would be more complimentary to their business.
kennas said:Barrick Gold out tis am stating they are after acquisitions in the Asia Pacific with 2m oz or more. Puts NCM and LHG clearly on radar. These two stocks should do ok today.
doctorj said:I expect there to be action over at Wesfarmers - they're facing a tough period to maintain their crown of market darling so I expect them to start making some moves.
doctorj said:Other possibilities include expanding production of Wesfarmers Energy or buying another insurer to grow that side of their business.
New tax break may trigger a takeover tsunami
Malcolm Maiden
December 18, 2006
IT IS likely to be a short Christmas break for the sharemarket and the private equity raiders who are pulling share prices up by their own bootlaces. Although the Federal Government apparently does not believe it, a change in the way overseas investors are assessed for capital gains tax sets the stage for an increase in the already astonishing volume of private equity-backed takeover bids in this country.
The changes, passed by the Senate on December 6, a year-and-a-half after they were announced, exempt overseas investors from paying tax on gains in the value of shares, including major stakes in listed companies. In effect, foreign investors are now excused from paying capital gains tax on investments that do not involve the acquisition of property, including resources.
The measures got through the Senate after Labor sided with the Government to head off opposition from the Greens, the Democrats, Nationals Senator Barnaby Joyce and Family First senator Steve Fielding. Joyce said that nobody had been able to explain to him "how I could tell someone in a pub in Ipswich why an overseas private equity fund raider should get a capital gains tax break on Australian investment that Australians cannot get".
But the concessions are really designed to bring Australia into line with the tax regimes Australians have to comply with in major countries overseas, including the United States and Britain.
That's fair enough: Australia needs foreign investment, and it can hardly expect to get as much as it wants if competing venues are levying less tax on investment.
Introducing the concession in the middle of the biggest takeover boom in the Australian market's history is, however, the equivalent of pouring petrol on a bushfire.
Finance Minister Nick Minchin reportedly said that Australia had to have an "internationally competitive" tax system, and that suggestions that the tax advantage would generate a tsunami of takeovers backed by foreign private equity groups was absurd, because private equity funds accounted for less than 1 per cent of corporate activity, but the reality is somewhat different.
Private equity funds are the key force in the present takeover boom, and the takeover boom in turn is the key force in the market's rise in recent months to record levels that fundamentals, including earnings, no longer confidently support.
And with the new capital gains tax regime in place, the pace is set to accelerate. Takeover advisers inside the big investment banks say that a flotilla of big takeovers has been held back for the capital gains tax change, which will allow foreign buyers including the private equity funds to pay more for a company than the locals and still achieve the same return. Now that the new tax regime is law, these deals will begin rolling in.
The process is circular, and could have structural implications for this market, which is now producing less share equity than it is consuming. On Goldman Sachs JBWere's estimate, there has been $69.7 billion worth of takeovers concluded this year. Most have been cash takeovers that are removing shares from the system, because cash can be raised through borrowings very cheaply.
Citigroup estimates, on the other hand, that over the same time only $42.6 billion worth of new shares have been issued. That includes just a little more than $8 billion of initial public offerings (company floats), sharply down from about $15 billion in 2005, about $10.6 billion worth of share placements, and $8.7 billion for the first T3 payment on Telstra shares (the balance is not due until May 2008).
Takeovers are therefore sucking shares out of the market at a greater rate than they can be replaced, and the shortfall is even greater when the steady flow of multibillion-dollar corporate share buybacks are taken into account.
What is really sobering is that the gap is likely to widen. While $69.8 billion worth of takeovers have been completed this year, acquisitions worth the same amount are already being pursued, including the Qantas private equity privatisation. The swathe of takeovers that investment bankers say are imminent would come on top of that. On the supply side, there will not be a Telstra share sale next year, and the company float pipeline is far from full.
The best companies have either been sold into the three-and-a-half-year-old bull market or snapped up by the insatiable private equity funds, which now need to spend far more than $500 billion a year just to get the investor money they are receiving back out the door.
The takeover boom is supporting share prices in the short term, because cash freed up by the takeovers is chasing a dwindling number of shares that remain listed. But if the trend persists, a sharemarket that is already badly imbalanced, with financial companies accounting for about two-thirds of total market capitalisation, will continue to lose diversity, and arguably, depth.
At the very least, that process will force Australian fund managers to buy more foreign shares. At worst, it could narrow the base to a point where the market is in danger of losing critical mass, particularly in industrial share sectors.
Other sharemarkets, including those in Europe, are losing diversity and shrinking for the same reasons, and the flow could reverse when the private equity funds start re-floating the businesses they have acquired.
That process could take a while, however. Unless there is a huge resale profit on offer, companies such as Qantas, PBL and Flight Centre that have gone private for strategic reasons may not return until debt funds become scarcer and more expensive, and the cost of raising money in the equity markets once again becomes competitive.
And there is so much cash in the global system that those circumstances are not yet even on the horizon.
mmaiden@theage.com.au
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