There’s a lot of streamlining occurring in the Australian business world lately. Challenging market conditions and concerns about future productivity have a number of businesses merging or otherwise restructuring their operations. Investors need look no further than Coca-Cola Amatil Ltd (ASX: CCL), Metcash Limited (ASX: MTS) and Boral Limited (ASX: BSL) to see the process in motion.
It’s a smart move to make in leaner times, with every reform made now paying back extra in a few years as the economy improves or new strategies come to maturity. Sometimes these actions involve business reforms (Coca-Cola and Metcash), and sometimes mergers or acquisitions (Boral and CSR).
Challenger Ltd (ASX: CGF)
Another company making a big purchase this week is Challenger Limited, who has announced its final offer (through wholly owned subsidiary Challenger Life) to acquire the remaining 41.3% of shares in subsidiary Challenger Diversified Property Group (ASX: CDI). Challenger Life intends to bring the property manager ‘in-house’ to identify opportunities to improve performance, as well as adding an excellent portfolio of assets to its books. The acquisition could almost be seen as akin to a share buyback, considering the takeover is off-market and Challenger was a majority owner in the first place.
Aurora Oil & Gas Limited (ASX: AUT)
Aurora had Foolish contributors hopping earlier this year with a predicted 47% increase in production and a very modest share price. Fellow producer Baytex in the US also noticed the potential and announced a takeover offer, sending the shares up 55% virtually overnight. Australia’s Foreign Investment Review Board wrote to Baytex recently confirming it has no objection to the proposed acquisition, moving Aurora just one step closer to being bought out.
Banks bet on Myer and David Jones
One other thing deserving of a brief look this week is the attention given to David Jones Limited (ASX: DJY) and Myer Holdings Ltd (ASX: MYR). There’s nothing like merger activity to get the banks moving quickly, and nothing like a company’s share price not equalling its takeover offer to inspire multi-million dollar bets. Swiss Bank UBS became a 5.14% owner in Myer on 8 April, and a 5.25% owner in David Jones on 9 April. It’s hard to say what that means (if it means anything), but I get uncomfortable watching UBS invest after a similar purchase before shares in The Reject Shop went tumbling nearly 50% in January.
The recent Myer purchase by UBS could be simple opportunism after Myer’s failed David Jones takeover bid. However investors should also be aware that the Commonwealth Bank has reduced its stake in Myer – I would watch Australian retail from the sidelines for a few months to see how things pan out, unless you see a price you can’t resist. As to mergers and acquisitions, there’s good money to be made, if you buy the right share at the right price, and you can increase your chances by buying undervalued companies with solid growth prospects.
Motley Fool contributor Sean O’Neill owns shares in Challenger Limited and The Reject Shop.
- Results: Is G8 Education Ltd a buy for its 4% dividend? – August 27, 2018 12:22pm
- Results: Why the Adacel Technologies Limited (ASX:ADA) share price is down 7% – August 26, 2018 9:54pm
- Results: Why the Nearmap Ltd (ASX:NEA) share price is up 4% today – August 22, 2018 5:15pm