solution

Part C refers to the case study summarised below, Use this case study and information from your own research relating to it to answer the question.

C1. Discuss the relevance and strategic rationale of the 19.96% interest that DuluxGroup has in Alesco on 1/05/2012 using appropriate terminology. What regulatory factors influence this value?

C2. What is the strategic relevance of the 90% condition stated on 1/05/2012? Include in your response specific reference to the method of acquisition being used. What regulatory factors influence this value?

C3. Is this deal hostile or friendly? Explain your response.

C4. Determine if there is evidence of the agency problem in the target’s actions. Explain your answer.

C5. Describe a potentially profitable merger arbitrage strategy and process, including risk assessment, that could be taken at 1/05/2012. You do not need to perform calculations to determine specific returns. Show all workings and assumptions in your response.

Duluxgroup Limited (DLX) acquisition of Alesco Corporation Ltd (ALS)

1/05/2012 – Directors of DuluxGroup Limited (DuluxGroup) (ASX:DLX) advise that DuluxGroup intends to make an all cash takeover bid for Alesco Corporation Limited (Alesco) (ASX:ALS) at a price of $2.00 per share. DuluxGroup has acquired an interest in Alesco of 19.96%. The offer is conditional upon, among other things, DuluxGroup acquiring a relevant interest in 90% of Alesco shares and various Regulatory approvals. Alesco directors advise their shareholders to take no action in relation to DuluxGroup’s offer.Comments:

23/07/2012 – Directors of Duluxgroup advise that they are increasing their offer for Alesco Corporation by increasing the cash offer to $2.05 per shares. Directors of Alesco advise shareholders to reject DuluxGroup’s revised offer.

03/08/2012 – Directors of Duluxgroup advise that Alesco has declared fully franked dividends of $0.15 per share. Given this, DuluxGroup’s $2.05 cash offer would now be delivered to Alesco shareholders as: $1.90 cash, plus $0.15 of fully franked cash dividends (being a $0.05 final dividend plus a $0.10 special dividend).

17/08/2012 – The Takeovers Panel has declined to make a declaration of unacceptable circumstances in response to an application dated 24 July 2012 from Alesco and an application dated 1 August 2012 from DuluxGroup.

The Takeovers Panel application from Alesco Corporation concerns an announcement made by DuluxGroup to ASX on 23 July 2012 concerning its current bid for Alesco. Alesco submits that DuluxGroup made misleading and deceptive statements. In the announcement. Alesco seeks, among other things, final orders requiring DuluxGroup to increase the cash amount of its bid to $2.23.

The Takeovers Panel application from DuluxGroup submits, among other things, that a letter sent from Alesco to its shareholders and recent statements to the media by Alesco’s chairman and other Alesco representatives contain misleading statements which are likely to impact on an efficient, competitive and informed market. DuluxGroup seeks interim orders to the effect that Alesco not make any further announcements or other communications without Panel approval.

31/08/2012 – The Alesco board confirms they reject the takeover offer from DuluxGroup of $2.05 per share.

10/09/2012 – Directors of DuluxGroup advise that in the absence of a supportive Alesco board recommendation, DuluxGroup will declare its offer unconditional on or after 1 October 2012 once it has in aggregate 50.1% or more combined in Voting Power and acceptances in favour.

02/10/2012 – The Alesco Board unanimously recommends that shareholders accept DuluxGroup’s $2.05 per share cash Offer. DuluxGroup has agreed to waive all Offer conditions other than the following conditions: (a) Minimum acceptance; (h) No prescribed occurrences; and (n) Index out.

11/10/2012 – DuluxGroup has received acceptances representing 61.4% of Alesco Shares.

06/11/2012 – The Alesco Board has already accepted the offer for shares they own or control. As at 31 October Dulux Group had received support from shareholders representing 75.7% of Alesco shares. 20/12/2012 – Directors of DuluxGroup Limited (Dulux) (ASX:DLX) advise that they have acquired a relevant interest in Alesco of 90.1% and intend to proceed with compulsory acquisition of all remaining shares.