Confidential

2018 UBS Investment Banking Challenge

Briefing seminar

March 2018
Agenda

1 Introduction to UBS
2

2 Thinking through a potential M&A opportunity

7

3 What makes M&A financially attractive?

9

4 Other considerations
15

5 Q&A
17

Appendix A Supporting materials

18

1
Section 1

Introduction to UBS
UBS is the leading M&A adviser in Australia
UBS has successfully maintained its position as the leading investment bank in the Australian market over a long period
of time
Australian advisory transactions—20171,2
Rank value Market Number Best Investment Bank—(2003, 2004, 2005, 2006, 2007, 2008, 2009, 2010, 2011, 2012, 2013, 2015, 2016)
Rank Financial adviser (US$bn) share (%) of deals
Best M&A Deal—Ausgrid (2016), Transgrid (2015), Transurban Consortium/QML (2014), NSW Ports Consortium
1 UBS 49.7 42.3 20 (2013), Foxtel/Austar (2012), Noble/Gloucester Coal (2009), St George/Westpac (2008),
AGL/Alinta (2006), Foodland (2005)
2 Deutsche Bank 46.4 39.5 7
Most Innovative Deal—Asciano takeover (2016), Westfield/Scentre demerger (2014),
3 Goldman Sachs 45.6 38.8 19 Origin Energy EUR500m hybrid (2011)
4 Morgan Stanley 39.8 33.8 9 PBL Media spin off and LBO (2006)
Best Equity House—(2006, 2007, 2010, 2011, 2012, 2013, 2015, 2016)
5 BAML 37.4 31.8 12
Best IPO—Link (2015), Healthscope (2014), Virtus Health (2013), QR National (2010), Boart Longyear (2007)
6 Rothschild 35.5 30.1 14
Best Equity-Linked Deal—Crown Resorts (2015), Suncorp (2013, 2012), ANZ (2011), Westpac (2009)
7 Lazard 35.0 29.7 5 Best Local Bond Deal—AOFM (2013), BP (2012), AOFM (2011),Tabcorp (2009),
8 BNP Paribas 32.4 27.5 2 AMP (2008), Swiss Re (2007)

9 Jefferies 32.4 27.5 1

ASIAMONEY
10 Macquarie 18.0 15.3 24 Best Investment Bank—(2008, 2009, 2010, 2011, 2012, 2015)
Source: Thompson Financial Best Equity House—(2007, 2009, 2010, 2011, 2012, 2015)
Best M&A Adviser—(2009, 2010, 2011)
Australian advisory transactions3 Best IPO—Link (2015), Fonterra (2012), QR National (2010); Trade Me (2011)
Rank 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 Best M&A—Transurban Consortium/QML (2014), Foxtel/Austar (2012), AMP/AXA (2011);
UBS 1 2 1 3 1 5 2 1 1 1 Vodafone/Hutchison (2009)

Macquarie 10 1 2 2 2 1 8 2 3 3
Goldman Sachs 3 4 3 1 4 4 1 3 2 10
Morgan Stanley 4 3 10 6 3 7 7 6 12 4 Best Investment Bank—(2006, 2007, 2008, 2009, 2010, 2011, 2012, 2013, 2014, 2016)
Best M&A Bank—(2005, 2006, 2012, 2014, 2016)
Deutsche Bank 2 7 4 8 9 13 12 5 5 6
Best Overall Broker—(2006, 2007, 2008, 2009, 2010, 2011, 2012)
Credit Suisse 11 5 7 7 10 2 17 7 13 5
Best Research, Derivatives, ECM and Dealing—(2003, 2004, 2005, 2006, 2007, 2009, 2010, 2011, 2012, 2014)
Lazard 7 20 12 9 8 21 6 4 6 7 Best Equity Capital Markets Bank—(2010, 2011, 2012, 2013, 2014)
JP Morgan 12 10 8 17 6 14 3 13 4 9
Rothschild 6 >25 16 10 7 6 16 11 7 16
Citi 18 8 5 4 11 3 19 9 8 8
Source: Thomson Financial, UBS Best Investment Bank (2007, 2009, 2010, 2011, 2013)
Notes: Corporate Finance House of the Year—M&A (2011)
1 Any Australian involvement, 2017 announced deals as at 31 December 2017 Corporate Finance House of the Year—Equity (2010, 2011, 2013)
2 Total market share may be greater than 100% as full credit is given to each eligible adviser
3 Any Australian involvement, announced deals as at 31 December 2017, ranked in order of cumulative M&A of the Year—NSW Ports Consortium (2013), AMP/AXA (2011)
announced deal value from 2008 to 2017 IPO of the Year—Trade Me (2012), QR National (2011)

3
UBS has been instrumental in numerous M&A transactions
UBS is Australia’s most active M&A adviser …
Current
Sole Financial Adviser to
Sirtex Medical Limited on its
A$1.6 billion proposed acquisition
by Varian Medical Systems
Current
Defence adviser to AWE in
relation to a A$630 million
competing off-market takeover
offer from Mitsui and CERCG and
scheme proposal from Mineral
Resources
November 2017
Sole Financial Adviser to Nufarm
on the A$627 million acquisition
of the “Century” crop protection
portfolio from Adama
and Syngenta
Current
Sole Financial Adviser to
LifeHealthcare on its
A$211 million proposed
acquisition by
Pacific Equity Partners
March 2018
Financial adviser to Telstra on the
combination of Foxtel (50%
owned by Telstra, 50% by News
Corp) and FoxSports (100%
owned by News Corp) for an
undisclosed sum
October 2017
Sole Financial Adviser to Suntory
in relation to the sale of its
Cerebos Food and Instant Coffee
business in Australian and New
Zealand and Asian Home Gourmet
Singapore business to Kraft Heinz
for a total consideration of
A$290 million
Current
Financial Adviser to Westfield
Corporation in relation to its
recommended c.A$33 billion sale
to Unibail-Rodamco
December 2017
Financial Advisor to Orocobre
Limited in relation to it’s
A$282 million Strategic Placement
to Toyota Tsusho Corporation
October 2017
Sole Financial Adviser to
AccorHotels in relation to its
A$1.3 billion acquisition of
Mantra Group
Current
Joint Financial Adviser to Ontario
Teachers' Pension Plan in relation
to its A$1.035 billion sale of
Metronode to Equinix
December 2017
Joint financial adviser to Aristocrat
Leisure in relation to the US$990
million acquisition of Big Fish
Games
September 2017
Joint Financial Adviser to Origin
Energy on the A$1.59 billion sale
of its conventional E&P business
(Lattice Energy) to Beach Energy
Current
Sale of AHG’s Refrigerated
Logistics business to HNA
International for A$400 million
November 2017
Sole financial adviser to Nufarm
on its acquisition of a portfolio of
cereal broadleaf herbicide assets
from FMC for A$117 million
September 2017
Sole Financial Adviser to Aurizon
Holdings in relation to the sale of
its Acacia Ridge Intermodal
Terminal to Pacific National and
sale of its Queensland Intermodal
business to Linfox and Pacific
National for a total of
A$220 million
4
UBS is the long-term leader in equity capital markets
UBS is Australia’s No.1 ECM house UBS is No.1 for equities sales and trading
Australian secondary market … and 2006–17
2006–18YTD 2018YTD Historical rankings
Equity Market Market
trading—2018
raised (A$bn) share (%) (A$m) share (%) 18 17 16 15 14¹ 13 12 11 10 9 8 7 6
14%
UBS 107 21 2,493 38 1 1 1 1 2 1 1 1 1 1 1 1 1 11%

Market share (%)

MQG 65 13 605 9 3 2 2 2 3 2 4 2 7 2 4 3 4 10% 9% 9% 9%
9%
GS 47 9 – – – 10 10 3 1 3 5 8 5 6 3 5 2 8% 7% 7% 6% 6%
7% 7%
6% 6%
JPM 37 7 195 3 6 4 4 8 16 8 8 3 4 4 2 2 6
DB 28 6 110 2 8 6 9 11 8 9 6 7 6 7 7 9 3
CS 28 6 545 8 4 46 3 7 4 15 7 10 10 3 6 7 8
Citi 25 5 – – – 7 3 9 9 4 12 6 3 5 8 6 5
MS 24 5 199 3 5 14 5 6 5 7 3 14 9 8 9 4 7 UBS Citi DB MQG CS MS GS BAML UBS Citi DB MQG CS GS MS BAML
BAML 23 5 1,450 22 2 3 7 4 6 6 2 5 8 10 10 29 17 Source: IRESS (2006—18 as at 20 March 2018), East Coles Surveys

Morgans 21 4% – – – 34 13 5 7 5 9 4 2 9 5 10 14
• No.1 sales team since 2008 as ranked by East Coles and integral to the investor positioning and
Source: Thomson Reuters equity and equity-linked league tables as at 20 March 2018 sales for IPOs and equity capital raisings
Note: • No.1 offshore sales of ASX Equities with the largest team dedicated to selling Australian equities to
1 Includes $672 million Oil Search block
overseas investors

Select recent UBS transactions Recent accolades and awards

$2,527 million $554 million $1,900 million $3,478 million $446 million $264 million
UBS dominated the FinanceAsia 2017
PAITREO Block PAITREO Block PAITREO IPO
ANZ Achievement Awards:
February 2018 February 2018 December 2017 November 2017 October 2017 October 2017
1) Best Investment Bank
2) Best Equities House
3) Best Secondary Offering
4) Best IPO
$322 million $301 million $375 million $1,011 million $872 million $1.011 billion
ANREO ANREO Placement PAITREO Block AREO/Placement
October 2017 September 2017 September 2017 March 2017 September 2016 June 2016

At The Asset Triple A Country

Awards 2016, UBS was awarded:
$800 million $1,025 million $2,518 million $947 million $3.5 billion $5.1 billion 1) Best Equities House
ANREO/Placement PAITREO PAITREO IPO PAITREO PAITREO 2) Best IPO
March 2016 November 2015 October 2015 October 2015 October 2015 August 2015 3) Best Follow-on Offering

5
Investment Banking at UBS
Investment banking in its traditional form is concerned with advising corporate clients on mergers and acquisitions (M&A), as
well as raising funds in the capital markets

Information
barrier

Corporate Client Solutions Investor Client Solutions

Mergers and Acquisitions

Equities Trading and Sales

Equity Capital Markets

Rates and Credit Trading and Sales

Debt Capital Markets

Foreign Exchange

Leveraged Capital Markets

Securities Research
(also behind research information barrier)
Corporate Lending

Prime Services
Industry sector teams

Non-public information Public information

Support functions / logistics

6
Section 2

Thinking through a potential

M&A opportunity
Why do companies engage in M&A?
A company can engage in M&A activity for a variety of reasons

1 Business growth
• M&A activity allows a company to grow more rapidly than would otherwise be possible through its existing operations

• When a company acquires another company, it gains control of the target’s assets, enabling the acquirer to utilise them to maximise performance,
market share and cash flows earned

2 Synergies
• Synergies exist when a company can acquire another company and extract additional value from the ownership of that company. They make the
target company more attractive and valuable to the acquiring company than it would be on a stand-alone basis

• Synergies can be related to—(i) costs (e.g. centralisation of certain activities

(such as marketing, accounting and back-office functions)); and / or (ii) revenue Is the timing right?
(e.g. cross-selling opportunities)
• Relative performance of share price /
operations
• Shareholder sentiment
3 Strategic advantages
• Ability to fund the transaction
• A strategic acquisition can often benefit the business operations of the acquiring company
by expanding operations to include downstream or upstream functions related to the
acquirer’s business

• An acquisition may also provide diversification benefits (e.g. geographic, product or service,
customers, etc.)

• This often allows exposure to growing markets or businesses which may not be presently within
the field of expertise of the acquirer

What would the merged company look like?

8
Section 3

What makes M&A financially attractive?

Company value—key principles

Company value can be Market capitalisation—represents the equity value of a firm

expressed in two ways

Market Shares Share

capitalisation = outstanding x price

Enterprise value—represents total firm value (both debt and equity)

Net debt Hybrids

Enterprise Market
value = (total debt + capitalisation + (i.e. convertible
less cash) notes)

10
Presenting valuation analysis—example“football field”
[Page message to summarise and refer to key valuation reference point(s)]
EV/Jun-18F (LTM)
Current share price: A$1.701 EBITDA2 (x) Comments

• Low: A$[0.94] on [date]

12 months trading range 0.94 1.98 5.3–10.6x
• High: A$[1.98] on [date]
Market valuation

Premium to spot 2.13 2.38 11.4–12.7x • Reflects illustrative [x]–[x]% premium to spot price of A$1.70

• Low: [broker A]
Broker price targets 1.92 2.02 10.3–10.8x
• High: [broker B]

• Low: [peer A]
Trading multiples 1.42 1.73 9.6–11.2x
• High: [peer B]

• Low: [transaction A]
Transaction multiples 2.32 2.57 12.3–13.6x
Fundamental valuation

• High: [transaction B]

DCF 1.68 1.89 9.1–10.2x • Assumes [x] year DCF, [x]–[x]% WACC and [x]% TGR

• Assumes [x] year DCF, [x]–[x]% WACC and [x]% TGR

DCF with synergies 2.00 2.26 10.7–12.1x
• Assumes A$[x] million run-rate synergies from year [x]
Capacity

•
to pay

Assumes [x] year hold period, [x]–[x]% target IRR, [x]x

LBO 1.51 1.78 12.1–13.7x
gearing and [x]x exit multiple

Notes:
1 As at [date]
2 Assumes EV / Jun-18F (LTM) EBITDA of A$[x] million

11
What is the financial impact of the acquisition ?

Key transaction structure and funding considerations Australian takeover premia1—acquisitions >A$50m since 2003

• Price 45%

– premium required to be paid?

• Funding
– debt and / or equity?
c.40%
– what is our funding capacity? 40%
• Consideration
– cash and / or shares?

Key shareholder impact analysis considerations c.35%

35%
• Earnings per share (EPS)
• Dividend per share (DPS)
• Gearing (net debt / EBITDA)
• Ownership / shareholder register c.30%
30%
• Sensitivities

25%
One day One week Four weeks
Note:
1 Represents average of premium to spot price in time period preceding announcement

12
Example—transaction structure and funding
[Page message to set out key transaction structure assumptions]
Key assumptions Sources and uses

The illustrative impact analysis that follows considers an acquisition of Illustrative sources (A$m)
[target] by [acquirer] based on the following assumptions Jun-18PF EBITDA 171
Target debt / EBITDA 2.5x
• A pro forma transaction date of 30 June 2018
Total debt capacity 428
• An illustrative acquisition value of c.A$[459] million Less: existing net debt (Jun-18F) (116)
– based on [9.0]x June 2019F EBIT of c.A$[51] million (implies [7.4]x New debt capacity 312
EBITDA of c.A$[62] million) Offer price (A$ p / s) $1.51
NOSH (m) 101.6
• Allowance for transaction costs of A$[6] million
Equity 153
• Acquisition funded via Total 465
– new debt of A$[312] million—targeting leverage of [2.5]x June Illustrative uses (A$m)
2018F pro forma EBITDA (of A$[171] million) Acquisition value 459
– equity of A$[153] million—via rights issue executed at a [7.5]% Allowance for transaction costs 6
discount to TERP Total 465
• Illustrative synergies of c.A$[5] million p.a. phased 25% / 50% /
100% over FY 2019–21F
Sensitivity analysis—equity funding requirement (A$m)
– A$[5] million costs to achieve incurred over FY 2019–20F
Acquisition value (A$m) and implied multiple
408 434 459 485 510
153
8.0x 8.5x 9.0x 9.5x 10.0x
1.50x 276 302 328 354 380
leverage (x)

2.00x 188 215 241 267 293

Target

2.50x 101 127 153 179 205

2.75x 58 84 110 136 162
3.00x 14 40 66 92 118

13
Example—financial impact of an acquisition
[Page message to communicate the financial impact in the key year post transaction]
EPS accretion Net debt / EBITDA

100 +28.4% 3.0x

+28.1% 2.5x
2.5x

Net debt / EBITDA (x)

80 +28.2% 71 2.1x
64 2.0x
EPS (cps)

60 52 55
50 1.5x 1.3x
41 0.9x
40 1.0x 0.8x 0.8x
0.5x 0.2x
20
0.0x
0 (0.5x) (0.3)x
FY19F FY20F FY21F FY18PF FY19F FY20F FY21F
Pre transaction Post transaction Pre transaction Post transaction

Sensitivity—FY21F EPS accretion Sensitivity—FY21F EPS accretion

Acquisition value (A$m) and implied multiple Acquisition value (A$m) and implied multiple

408 434 459 485 510 408 434 459 485 510
22.5% 28.4%
8.0x 8.5x 9.0x 9.5x 10.0x 8.0x 8.5x 9.0x 9.5x 10.0x

– 28.9% 27.0% 25.1% 23.3% 21.6% 2.00x 29.7% 27.8% 26.1% 24.3% 22.6%
Synergies (A$m)

Target leverage

2.5 30.6% 28.7% 26.8% 25.0% 23.2% 2.25x 30.9% 29.1% 27.2% 25.4% 23.7%

5.0 32.3% 30.3% 28.4% 26.6% 24.8% 2.50x 32.3% 30.3% 28.4% 26.6% 24.8%

7.5 34.0% 32.0% 30.1% 28.2% 26.4% 2.75x 33.7% 31.7% 29.7% 27.8% 26.0%

10.0 35.7% 33.7% 31.7% 29.8% 28.0% 3.00x 35.2% 33.1% 31.1% 29.1% 27.2%

14
Section 4

Other considerations
Other questions you may need to consider?

Key risks and issues Tactical considerations

• Target’s shareholder register • Approach strategy
– major shareholders may – scheme of arrangement vs. takeover?
have leverage
– friendly vs. hostile?
• Potential interlopers – do we need to conduct due diligence?
– who might we have to compete with?
• What price do we offer?
• Funding – start low then increase? knock out bid?
– timing
• Should we acquire a pre-bid stake?
– ability to execute
• How might the target respond?
• Regulatory concerns
– who are the key decision-makers and stakeholders?
– competition
– foreign investments

What is your advice in the short and longer-term?

16
Section 5

Q&A
Appendix A

Supporting materials
Valuation methodologies
Company valuation is a
critical part of M&A advice
and there are three
principal methodologies …
… however, remember
that valuation is an art not
a science and no single
valuation method will
provide the “right” answer
Discounted Cash Flow (DCF) valuation
• Has a strong theoretical basis and is commonly used in specific industries (e.g., mining) and in the valuation of
start up projects where near term earnings may be volatile
• Assumes that the value of a company is equal to the risk adjusted present value of its future cash flows
• Determines net present value based on free cash flow, terminal value and cost of capital
Relative valuation
• Most appropriate for businesses with a substantial operating history and a consistent earnings trend that is
sufficiently stable to be indicative of ongoing earnings potential
• Involves capitalising earnings based on comparative trading or transaction multiples and gives an indication of
value relative to a company’s peers
Leveraged Buyout (LBO) analysis
• Leveraged buyouts are acquisitions funded with a significant proportion of debt (leverage) and little equity
• LBO analysis determines returns based on company cash flows, acquisition price and optimal leverage
• It is used almost exclusively for financial sponsor or private equity transactions
19
DCF valuation

DCF valuation is the Model layout and presentation

process of discounting • Models need to be thoughtfully constructed. This is important to ensure model integrity and the ability to
future cash flows convey information to the appropriate users. Criteria for good model design include
– accuracy
– flexibility
– ease of understanding
• Key components of a model include
– summary page
– assumptions (e.g., depreciation policy, product price, volume growth, tax rate)
– NPV outcome
– NPV sensitivities
– financial statements (profit and loss, balance sheet, cash flow)
– detailed calculations
– identify key variables
– start from base year and project forward for each variable
• Keep it simple!

20
DCF valuation

Sensible cash flow Forecasting future cash flows

forecasts are the key to • A cash flow forecast should be prepared on an assumed time frame
any DCF valuation (do not forecast out too long because estimates may become unreliable, generally 10 years is acceptable)
• Although there are several variations of cash flow that can be used, in order
to value a firm as a whole, it is common to use the Free Cash Flow available
to both debt and equity holders

Free Cash Flow to Firm (FCFF)

Description Represents the free cash flow available to all members of the firm including both debt
holders and equity holders
Discount rate Weighted average cost of capital (WACC)
Cash flow
EBIT
calculation
- Tax
- Increase in working capital
- Capex
+ Depreciation
= FCFF
• Future estimates should be driven by a set of growth and margin assumptions which will help deliver the future
EBIT. These drivers should be based on historical, industry and economic data as well as any published
management guidance
• Cash flows are then discounted back to present value using the relevant discount rate (i.e., WACC)

21
DCF valuation

Terminal value
• A second component of a DCF valuation is the terminal value

• This represents the value of the firm in perpetuity and is based around a perpetual growth rate (usually equal to
the growth rate of the economy in which the company principally operates)

• The formula for calculating the terminal value is

Final cashflow x (1 + g)
TV =
WACC – g

• The terminal value should then be discounted back using the appropriate discount rate

Calculating value per share

• Combining the present value of future cash flows together with the present value of the terminal value returns
the total enterprise value for the firm
• Deducting the net debt (total debt less cash) from enterprise value allows for
a firm’s equity value to be calculated, which in turn can be used to calculate fair value per share

22
DCF valuation

What is WACC?
Target w eightings in optimal
Equity risk
• A key component of any DCF calculation is the capital structure
premium
discount rate applied to future cash flows—

Cost of equity
used to derive the present value of those 5.7%
cashflows in “today’s dollars” Cost of equity:
Geared equity 60%
9.9–10.4%
• The appropriate discount rate will depend upon beta
the rates of return on an investment demanded 0.80–0.90
by the providers of capital (debt or equity)

• The WACC represents the average cost of

Risk free rate
borrowing across equity and debt, weighted by
5.3%
the relative amounts of each used in the capital

Cost of debt
structure of the firm
Cost of debt: WACC
25%
7.5% 9.0–9.3%
Debt risk
premium
2.20%
Cost of hybrids

Cost of hybrid:
8.0%
Depends on
(assumed interest
particular hybrid 15%
cost on non-
instrument
publicly traded
convertible note)

23
Relative valuation

• Relative valuation is based on the principle of capitalising earnings based on comparable trading or
transaction multiples
• Multiples can be applied to a number of different earnings (or cash flow) measures including EBITDA, EBIT or
NPAT. EBITDA often allows a comparison between many different companies as it is not affected by differences
in the treatment of depreciation and amortisation or capital structure choices
• Multiples are an attractive valuation tool because they are easy to compute, however they are static in nature
• Common multiples include
– Enterprise Value / EBITDA (EV / EBITDA)
– Enterprise Value / EBIT (EV / EBIT)
– Market Capitalisation / NPAT (P / E)
• When using a multiple for valuation purposes, care should be taken to ensure that the assumptions and
circumstances underlying the multiple are clearly understood
• It is also important to ensure that companies with comparable operations are selected (quality of comparables is
more important than quantity)
Low Midpoint High
Comparable trading or transaction multiple¹ (x) 8.0 9.0 10.0
Forward EBITDA ($m) 100 100 100
Implied enterprise value ($m) 800 900 1,000
Less net debt ($m) 250 250 250
Implied equity value ($m) 550 650 750
Shares on issue (m) 100 100 100
Implied value per share ($) 5.5 6.5 7.5
Note
1 Start with a midpoint multiple (i.e., the average EV / EBITDA multiple of a group of comparable companies) and then adjust upwards and downwards to
create a valuation range

24
Takeover structures—scheme vs. off-market takeover

There are two main ways Off-market takeover offer Scheme of arrangement
Description • Not only a “hostile” structure—can be efficient for • Requires Target board support, so only possible
to implement a agreed deals if “friendly”
“takeover”—an • Offer to all shareholders with statutory obligation • Bidder and Target sign an implementation
off-market offer and a under Chapter Six on bidder to proceed agreement to initiate the process which is subject
• Offer may be conditional, but no to Court approval
scheme of arrangement
self-defeating conditions • ASIC must confirm no objections to scheme
Timetable • Timetable regulated by Corporations Act • Timetable largely driven by Corporations Act
• Ultimate length subject to acceptances and and Court
compulsory acquisition process • More certain timetable than offer
Documentation • Bidder’s statement must contain all • Target takes primary responsibility for
material information Scheme Booklet
• Target’s statement must include Board’s • ASIC has a 14 day review before the Booklet is
recommendation and all material information presented to the Court
Independent • Independent expert’s report required if—(a) bidder holds more than 30% of target, or
expert (b) common directors
• But, in any case, frequently used by targets as defence strategy or to support a scheme
Compulsory • 90% of all shares, and • Of those shareholders who attend and vote at the
acquisition • 75% of the securities that the bidder offered meeting—50% in number, and 75% in value
to acquire
Deal protection • Bidder subject to statutory obligation to proceed • Lack of statutory requirement to proceed has seen
with bid some foreign bidders walk away from schemes
with minimal consequence
• Break fees and minimal conditions the
key protection
Other • Scope to structure conditions that a Court may • Perception of agreed deal potentially reduces third
considerations object to under a Scheme and to change terms and party / interloper interest
conditions during offer period • Flexibility in structuring complex transactions,
• Investors rarely accept conditional offers— though limited flexibility post first Court hearing
conditions may be “dropped” during offer • “All or nothing” outcome—100% shares acquired
if Scheme approved or no shares acquired

25
Offer level determinants

The value of a takeover What determines offer level?

offer is a key determinant • The value of 100% of a company may differ from the value of its portfolio interests
in the outcome of a deal,
• The owner of 100% of a company has direct access to cash flow and taxable income, controls the board of
as well as the reaction directors, appoints senior management and controls all investment, financing and strategic decisions
of the target board
and shareholders • As a result, a premium, known as a control premium, is offered when a company makes a bid for 100% of
another company

• Empirical evidence of this premium is observed in the level of takeover premia and in the Australian market
this is, on average, in the range of 20–40%

– it should be noted that this is not the sole determinant of the quantum of takeover offer and computing
an offer value is not as simple as adding a 30% premium to a base case valuation or the last traded price
of the target

• The offer price will be based upon

– valuation

– the strategic significance of the target

– expected synergy levels

– ability of the bidder to increase future value through improved operational processes and capital structure

– other parties competing to acquire the target

– growth profile of the target

26
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