But Smedley will never be rushed to sell. The negotiations for Spotless Group lasted months until Private Equity Partners had showed they were serious by increasing their bid twice from the first offer.
Wait till the shareholders are ready to sell
Spotless shareholders were so anxious for Smedley to agree to the sale price that they almost tipped him out of the chair through an extraordinary general meeting. They were furious that he had named a price of $2.80 a share, giving away the price, and that he was demanding the price to give the buyer access to the books to conduct due diligence.
By the time Smedley agreed to the sale, shortly after surviving the challenge, Spotless shareholders were in a lather to conclude the sale.
Sort out the tyre-kickers
As a buyer, Smedley knows the risk of a buyer weakening a company during negotiations to force a deal or a cheaper price.
He was CEO of Mayne Group after Colonial Mutual, where he again used acquisitions to grow. Although the strategy was unsuccessful for Mayne, and Smedley lost the leadership, his bid for a Queensland pathology company showed his no-holds-barred approach.
When the partners who owned the company resisted the sale, Smedley started poaching several of the group’s executives, who did not have equity, to force the partners to the negotiating table.
Billabong was in negotiations with a private equity company, TPG, when another, Bain Capital, started sniffing around. When Bain walked away, it hurt Billabong’s chances of any deal, let alone a favourable one.
Smedley makes buyers prove their bona fides. He tried to make PEP increase its offer before he would let them have full access to the group’s records to conduct due diligence, a move that shareholders opposed. However, his strategies ensured both parties were fully committed to the deal and keen to quickly seal it.
Know your value
Smedley infuriated Spotless shareholders by naming a price – $2.80 a share – that he expected before giving PEP access to the books.
The idea of giving away the sale price to the bidder goes against every traditional rule of corporate deal-making. What if PEP had been willing to pay more? In the end, however, Smedley was right about the value of the company. The shareholders in fact agreed to sell below the price he had named, accepting $2.68 a share plus a four-cent dividend. This made the sale price $723 million, up from the original $690 million bid.
Buyer beware
Smedley gets the best price. In the case of Colonial Mutual, CBA paid $8 billion.
All hell broke loose when the bank later realised it had to pay out $33 million to the group’s CEO, Chris Cuffe, when he walked away from the job.
The enormous payout created horrible headlines for David Murray, the then chief of CBA, who grumbled that the bank had been able to do very little due diligence before doing the deal.
Smedley would have none of it.
He defended the remuneration of the Cuffe and other Colonial executives, and said that CBA should have been aware of the details of the remuneration deals.
Keep it in perspective
The day after PEP confirmed its first bid for Spotless, Smedley took time out to attend a golf gala dinner at Crown Casino. The event attracted 1000 or so business and political golf enthusiasts and began a week of festivities associated with the Presidents Cup golf event that starts at Royal Melbourne Golf Club.
