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Question 1
What motivated each firm from a business-financial standpoint?
Answer:
Motivation for each firm from finance standpoint of view-
a. Japan post- The Company has offered a total of $6.50 billion to toll holdings in cash to buy the management control of the company. According to the management of Japan Post, a state owned postal service in Japan, it is not buying the company because of the toll holding’s logistics services in Australia. It is buying the company because the toll Holdings is a logistics company having large business network in Asia pacific region. The Japan post’s management wants to focus on increasing the business network in Asia pacific region which is in consonance with overall long term business strategy of the company.With this deal the Japan post holdings has been able to narrow the losses they were incurring in their business as they get the business expertise of Toll holdings in their business.(Tudor-Ackroyd , 2015)
b. Toll Holdings- According to the management of toll holdings, there were certain problems related to the expansion strategy of toll in Asia pacific region which has led to the weakening of share price of the company. This has prompted the management of Toll Holdings to accept the cash offer made by the management of Japan Post
Following is the details of mergers prices in relation to Japan Post and Toll Holdings-
S.No. Particulars Amount
a. Total price of takeover $6.50 Billion
b. Type of payment Cash
c. Per-share offer price/selling price/acquisition price of toll holdings $9.40 per share
d. value of toll holdings $8 billion approximately
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Question 2
How did this particular acquisition fit into the strategy of the acquiring firm? Does it make sense?
Answer:
This particular acquisition perfectly fits into the policy or strategy of acquiring firms. Japan post was looking into foraying well in to the south East Asian markets and Asia pacific region. However, this requires great deal of network especially in postal service as this requires great deal of logistics support for a wide customer base. Logistics support is needed to become cost efficient and time effective.
An acquisition is made when the company needs to expand in different business segment or expand in same business segment but in different markets at different locations geographically. A firm may also approach another for acquisition to get the expertise of the target; to take the advantage of the financial position of the target company.
Japan post has bid for buying out toll holdings out of Australia because it was focusing on improving its postal services in Asia Pacific region but it had no logistics support there. However, toll holdings had huge presence in Asia Pacific region. Having said that, toll holdings even though having wide presence pan Asia pacific region, was getting tough competition back home from Australia post. This led to toll holding deciding to accept the bid of Japan Post for $6.50 billion. (Fickling, Sato, Foley, 2015)
It makes sense because the target company as well as the bidding company was both able to get the business benefits in their weaker areas. They are not only benefit financially from the synergy created with merger but also get the business expertise of each other as both of them have years of experience in their field. (Wiggins, 2015).
Question 3
What were the terms of the transaction? Provide possible explanations for any special terms in the deal structure.
Answer:
The following were the key conditions of transactions in the merger of Japan Post and Toll Holdings-
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a. The offer price per share for toll holdings is $9.04 per share in cash.
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b. The basis of cash price of $9.04 per share is forty nine percentage premium as per the last traded closing price and remaining fifty three percent premium of weighted three months volume average price of the company on Australian Stock Market.
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c. The offer price is the result of implied market capitalization of toll holdings to $6486 million and an estimated value of the company at $8019 millions.
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d. In addition to this, the shareholders of toll holdings registered on 2nd of March, 2015 shall also be entitled to $0.13 per share in form of dividend.
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e. Toll holding is to retain its own brand and maintain its own separate identity and shall become a part of division that leads the global businesses of Japan Post Holdings.
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f. Toll holding management is to retain intact in place and the Chief Executive Officer of Toll Holdings shall report the management of Japan Post.
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g. Others- Other conditions and declarations provided in terms of various local statutes of both the countries. This is to satisfy the legal requirements for the mergers and acquisition and to make each other accountable if there is lapse on part of any company. (Australian Securities Exchange, 2015)
Special terms in deal structure seem to be above points (e) & (f).
Possible Explanation-
The points mentioned above are the special deal terms. These have been kept in place to signify and send a signal to the shareholders of the company that the very existence of company is not going to vanish just because of this merger. The company shall work as a separate unit in consonance with the global standards of Japan Post. This is done because Toll holdings has its own brand value in international market and relinquishing the same may not be recommended as it takes years of good business to make goodwill in the market.
The management of Toll holdings shall remain intact. This is done as to make sure that the target company maintains its own existence separate from the merger as the business in books may get merged but the ground reality of doing business is still the same as was before. The financial structure of the company is changing but the business structure and business ethics of the company are probably going to remain as the old one. The old management makes sure that the old company keeps its brand name alive in the market. Additionally, since the control of the company is being transferred to Japan Post, the future decisions will definitely be seeking approval from Japan post. So, by mentioning in the scheme itself, regarding the separate management will help the company in disputes, if any, in the future. (Toll Holding, 2016)
Question 4
If the acquisition is a hostile takeover, evaluate the effectiveness of any takeover defenses put up by the target. Analyse the bidding strategies of the different bidders.
Answer:
Several defensive strategies adopted by the target company against the hostile takeover are as follows-
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a. Golden parachute- In this strategy the company offers lucrative offers to its senior executives. By doing so, it makes sure that the executives loose these benefits if and when the takeover is sanctioned. This ensures that the executives remain on the side of the company.
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b. Macaroni Defence- This type of defence is a very unique technique. In this, the company issues certain interest carrying bonds to general public with a stipulation that such bonds shall be redeemed at higher prices when Bidder Company takes over the target company. This makes the issuer less attractive to the bidder. However, the company should be careful in issuing so much debt that the interest payments later on do not become a burden on the company.
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c. People pill- In this, the management threatens the bidder that it shall resign at once if and when the takeover is forcefully made final. This threat usually works of the management team is good. Generally, this forces the bidder to think twice if bidder decides to go forward with the forceful technique of merger.
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d. Poison pill- this kind of technique tends to dilute the value of its stock to make it less attractive to the bidder. Following are enumerated two varieties of this pill . One is flip in where the company gives permission to current shareholders to purchase shares at a very less price. In flip on pill, the company allows the current shareholders to make purchase of shares of the bidder at less price or in technical terms discounted price in the event of merger. This ultimately leads to difficult merger.
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e. Suicide Pill- in which the company takes such an action that it leads to the destruction of the company.
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f. Sandbag- in this the company stalls merger with a hope that another better offer may be given by another bidder like in case of white knight as mentioned below.
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g. White knight- In this case the company accepts the offer of a friendly bidder.
Common bidding strategies of bidders are-
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a. Casual pass- in this the company makes an informal inquiry of the position of the target company, the economic status of the company etc.
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b. Bear hug- in this a letter is given to the board of the target company forcing them for a takeover.
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c. Open market purchase- in this the target company’s shares are purchased in the open market.
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d. Proxy contest- in this the trust of the target shareholders is obtained to get the board of its own choice by eliminating the current board in next voting round.
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e. Tender offer- this is a direct offer to the target shareholders to buy their shares and consequently take over the company.
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f. Litigation- in this the lawsuit is filed against the target board accusing them of gross misconduct against the company. By this way, the bidder may be able to get the current board evicted and elect the board of its choice which may help in the merger.
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What was the initial market reaction for the bidder and for the target? Provide possible reasons for any favorable or unfavorable market reactions.
Answer:
The initial market reactions to the bidder and the target were very positive. The shareholders of Toll Holdings in fact unanimously approved of the takeover by Japan post. They were getting very good premium of almost hundred percent on their existing share value. They were getting an assured return in cash on their investment. The situation is like their investment was finally getting paid. Another reason was that due to weakening business of Toll in international markets the share price of the company was declining.
The reaction to the bidder was also positive. This was because the company could now be able to focus clearly on the Asia pacific region.
The evidence to this is the Japan Post’s biggest Initial public offer in the world for $11 billion approximately. This shows that overall the market reaction initially and later on has been extremely positive.
Question 6
What were the potential synergies in the transaction? Discuss possible obstacles that could prevent the realisation of these synergies.
Answer:
The possible synergies in this transaction as discussed earlier are the overall gain the business would get in the Asia pacific region. The support of logistics by Toll holdings would provide grounds for Japan postal services to operate effectively in the international markets as the logistical support of Toll is world renowned. The financial effect of the same would be better business for both the companies in common markets.
When the business of Japan postal services and technical support of Toll holding would combine, this would, in addition to financial synergy would create goodwill in the market for both the companies. (The Australian, 2015)
Possible obstacles in this situation could be countless. For example, the Japan postal service is not a success in the target markets. Since it fails, this leads to investment gone bad situation for the management of Japan Post. After paying $6.5 billion in cash, if it cannot recover the cost and profit the opportunity cost, this will be a failure on part of management. Another obstacle could be that both the companies are not able to work in the way they expected to work with each other. This could lead to friction in business of both the companies. When the comparison of estimation or forecast with the reality is made, if the synergies calculated at the time of merger were in any manner inflated, would lead to failure of merger. If the expected cost savings were estimated on wrong assumption, then after facing the reality, the merger may literally fail. (Joc, 2016)
Question 7
Do you think the transaction lead to higher shareholder value for the bidder from a longer term perspective? Why or why not?
Answer:
Yes, if the assumptions at the time of merger are valid and the company is able to realize the expected synergies in reality, then the shareholder value is increased in case of bidder.
This is because in the long run, the shareholders value depends on the business of the company, the reach of business, and ultimately the profit of the company.The profit of the company is bound to increase if the estimated calculations convert into reality. The synergies realized in the merger shall increase the business of the company which shall in return increase the profit earning capacity of the enterprise. The permanent increase in the profit earning capacity of the enterprise will ultimately enhance the market value for the enterprise which shall in return increase the shareholders’ value of the bidder. It is evident in case of Japan postings that since one year of the merger, the bidder has been able to close in the losses it was incurring earlier and improves its financial health. Also, the recent Initial public offer or IPO made by the company in last quarter of the year 2015 proved to be the most successful IPO of Japan’s history. The initial public offer was over-subscribed to several times and it was estimated that it stood at approximately $11 billion. This has added value to the shareholders net worth. (Marle, 2015)
Question 8
Assess the effectiveness of the post-merger integration if information is available.
Answer:
The merger of Japan Post with that of Toll holdings has been an extremely successful one. The Japan post was able to narrow its losses in next reporting period due to realizations of synergies calculated in the merger. This can be supported by the fact that since merger, the business of Japan postal services has grown significantly. Infact, the company recently announced its initial public offer which went over subscribed several times at record $11 billion. This has lead to the Japan post successful venture in to the Asian markets under Australian tag. The presence in the Asian market for its otherwise loss making postal service has lead the Japan postal service’s holding company to narrow down its losses post merger. In fact, the year 2014 was spent by the Japan posting in searching for a logistic support company in which the company could invest and penetrate the markets in Asia under foreign company tag as the Japanese companies are not viewed with enough goodwill in neighboring countries. Additionally, most of the companies in Japan having global presence have started to move out of Japan. This has led the government of Japan to think the future of its postal service which is ultimate owner of Japan postings. After searching extensively for the logistics support, it was decided to offer takeover bid to toll holding due to their Singapore and Chinese presence in Asian Markets. The research and the investment have paid off well to the postal company of Japan. Not only the company has posted low levels of loss in the coming quarters but also has been able to significantly improve its market base in business oriented Asia pacific region. The business of Japan posting is thriving in Asia Pacific and south East Asian regions after marking its presence in these regions. This has become possible only after the takeover of Toll Holdings. After few months of merger, Japanese government through Japan postal company applied for initial public offer. The public offer was reportedly oversubscribed several times and it is estimated that the government through its company was able to raise somewhere around $11 billion by the public offer. Hence, it seems that the market has taken the merger in a very healthy way and has responded accordingly. (Herbert Smith Freehills, 2015).
References
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Tudor-Ackroyd, A. (2015, February 22). Toll Holding’s shares leap on Japan Post Bid [Blog Post]. Retrieved from http://www.financeasia.com/News/394694,toll-holdings-shares-leap-on-japan-post-bid.aspx
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Wiggins, J. (2015, May 13). Toll becomes part of japan post as investors accept$6.5b takeover. Retrieved from http://www.smh.com.au/business/toll-becomes-part-of-japan-post-as-investors-accept-65b-takeover-20150513-gh0e1m.html
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Joc.com. (2016). Toll acquisition helps narrow japan post losses. Retrieved from http://www.joc.com/international-logistics/logistics-providers/toll-group/toll-acquisition-helps-narrow-japan-post-losses_20151116.html
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The Australian.(2015). Merged toll holdings to lead global growth for japan post. Retrieved from http://www.theaustralian.com.au/business/merged-toll-holdings-to-lead-global-growth-for-japan-post/news-story/ca283328f13217b796043b6b00fba57a
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Australian Securities Exchange. (2015). Retrieved from http://www.asx.com.au/asxpdf/20150218/pdf/42wntgp1qjhhj6.pdf
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Reuters. (2015). Japan post IPOs priced at top of range as government mines savings mountain. Retrieved from http://www.reuters.com/article/japan-post-ipo-idUSL3N12Q2CT20151026
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Toll Holding. (2016). Toll shareholders vote in favour of Scheme of Arrangement. Retrieved from http://www.tollgroup.com/cs/Satellite?c=ASX_Announcement_C&cid=1351221227201&pagename=OneToll%2FASX_Announcement_C%2FDetail
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Herbert Smith Freehills. (2015). Post-deal due diligence in Australian public M & A transactions. Retrieved from http://www.herbertsmithfreehills.com/insights/legal-briefings/post-deal-due-diligence-in-australian-public-m-and-a-transactions
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Fickling, D, Sato, S, Foley, B. (2015, February 18). Japan Post to Purchase Australia’s Toll for $5.1 Billion. Retrieved from http://www.bloomberg.com/news/articles/2015-02-17/toll-holdings-accepts-a-6-49-billion-takeover-bid-by-japan-post
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Marle, GV. (2015, February 23). Questions raised over operator valuations after Toll and APL Logistics Takeovers. Retrieved from http://theloadstar.co.uk/logistics-sector-ma-activity/
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