Ask Colin

Are there any general guidelines for takeovers/mergers/acquisitions/demergers?

The longer version ofthe question was:

Do you have any guidance about what to expect when or if you are a holder of stock in a company that has announced a merger with another company?

Things like - should I consider selling my stock and wait till the dust settles or hold and know there will be rewards for the transition? (The long question also mentioned certain specific demergers/mergers and asked for an example)

The answer to your question is that every case is different. You have to consider every case on its merits as I did in the recent Vocus Communications merger with Ammcom Telecommunications that I discussed recently in the Vocus Communications Stock Investment Journal. In that case, there was no action I was called upon to make as a shareholder; if  I did nothing it just happened. However, I  decided to reduce my exposure to the situation for the reasons stated. In another case I might do nothing, I might sell out completely or I might buy more. Every case has to be considered on the information available.

The above merger was a significant transaction. In many cases the acquisition may be small, so it makes little difference. Unless you check the announcements, you might not even know about it at the time.

Demergers are somewhat different, but the same principle of considering each case on its merits applies. In the case of the Orora and Recall Holdings demergers, I knew they were coming when I bought Amcor and Brambles and considered the issues then. I subsequently bought more of both demerged companies. In the case of Dulux, I bought the demerged company later on its own merits. In all demergers there is usually a very extensive information booklet with lots of information and pro-forma accounts to guide your decision.

I think you allude to the proposed merger of Programmed Maintenance Services and Skilled Group merger. I am not permitted to express any kind of  opinion on this to you without a licence. If you need advice, talk to your broker or financial adviser.

The best general guide I can give you on any takeover offer, merger, acquisition or demerger is to  seek out all the available information. Use the company announcement facility on the ASX website to catch everything. If you are required to make a decision, you will be sent information and a recommendation from the company whose shares you own. Weigh it up and decide what to do. If you need advice, talk to your broker or financial adviser. This also applies also in situations where you are not required to take action. 

Later I added these further comments:

When you get the merger scheme documents and you still have questions, phone (the company) and ask them. I am sure they would clarify any facts and maybe help you understand expressed opinions.

If that fails, and if you need advice, you need  to seek it from a licensed financial adviser.

It is always best to try to work it all out yourself, rather than ask for answers - when there are often no factual answers, but judgements. The best way to learn is make your judgements, act on them and the learn from what happens. Investing is not a precise science, it is a craft, so experience is all-important in developing skill. The best experience is often gained when you have money on the table.

I can teach knowledge, but experience cannot be taught - it is a journey only you can make.

As a small shareholder, it is not really your decision to make on whether the merger goes through - the merger scheme voting will be decided by the big shareholders and you will be taken along for the ride unless you decide to sell beforehand.

What you have to think about is whether you want to buy (more because you already own some) of the shares in the offer at the scheme price, because that is what you will be doing.

I cannot do more for you here than define the issue you have to decide.

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