Over the past year or so, there has been increasing pressure on listed companies to report anything that could influence their share prices, rather than receive a “speeding-ticket” to “please explain why your share price has risen from…to…(in such a short period of time)”.

When it comes to takeovers and mergers the water becomes muddier with bidding companies renowned for not saying anything before they make a bid (“our company policy is not to comment on…”), otherwise the target company’s share price would rise. However, when you are the target company what do you do ?

Hill 50 Limited (HFY) chose the option of keeping the market informed. On 10 December 2001, HFY received a conditional (needs more than 50.1%) cash offer from the South African gold company Harmony Gold for its shares and options after HFY’s major shareholder had reached an agreement with Harmony for his shares and options.

On 2 January 2002, HFY released a statement advising shareholders to “wait for further advice before accepting the Harmony Offer”, because RFC Corporate Finance had approached HFY with the possibility of an alternative possibly higher offer, and HFY’s directors were exploring the possibility. HFY had also apparently established a data room and other companies visited it too.

On 7 January, Harmony released their Target statement for Hill 50 with the offer open for two months until 8 March 2002 (one month longer than normal, apparently due to possible delays in attaining SARB [South African Reserve Bank] approval).

On Thursday 10 January, a widely publicized (in most media services) group of about 10-12 people apparently from Cogema visited HFY’s Mt Magnet operations and were reputedly going to visit the New Celebration operations on 11 January. It has to be stated that WA is probably one of the worst places to try and keep a secret, because most company directors are well-known and usually located in West Perth. Mt Magnet is a town on the main bitumen highway north from Perth and not a fly-in-fly-out in the “bush”, which probably adds to the difficulty keeping rumours under control.

We can recall that when there was speculation of a HFY bid coming (before 11 December) being told that one of the possible bidders was Sons of Gwalia because Mark Cutifani had been seen in a car in Perth with Peter Newton. Well, we knew that rumour was probably unlikely as I was driving the car, taking Peter Newton from the same hotel I was staying at to the HFY offices and on the way saw Mark Cutifani about to toil up the hill (in the heat) to SGW’s offices in West Perth and offered him a lift. Which illustrates just how easily rumours can spread.

On 21 January Hill 50 released their Target’s Statement recommending the usual that “In the absence of a higher offer your directors recommend that you ACCEPT the Harmony Offers” and the not usual “However, your Directors recommend you DELAY YOUR ACCEPTANCE until there are clearer signs regarding the possibility of an alternative bid and receipt of SARB approval. If you accept the Harmony offers, you have only limited rights to withdraw your acceptances”.

On 24 January, HFY reported that Harmony had received its SARB approval and one of its bidders had advised HFY that it did not intend to make a bid, but others were continuing their evaluations.

This was followed almost immediately on Friday 25 January by HFY reporting that on the evening of 24 January both other parties notified HFY that they also did not intend to bid. So what suddenly happened for three presumably independent parties to all reach the same conclusion at virtually the same time? It certainly was not SARB approval.

Apparently HFY were approached by ASIC to name who its bidders were (how else could they have found out ?), and then ASIC apparently pressured the potential counter-bidders to commit their intentions, which understandably scared them off. After all a counter-bidder is not going to open their hand and let market speculation increase the share price of their target. Also, the potential counter-bidders were apparently still evaluating their positions prior to consider making offers.

So, on 25 January HFY stated that although they are not aware of any party considering making a counter-bid, and the emergence of another bid appears to be relatively unlikely, they still think that there is little advantage in accepting the bid now. They also stated that that would inform shareholders if they become aware of another bid, or if Harmony’s bid becomes unconditional, or on the likelihood of any alternative bid two weeks prior to the close of the Harmony Offers (scheduled for 8 March 2002).

ASIC has protected the public from speculation in HFY shares, but in doing so has also apparently so far protected Harmony (and its shareholders) who have made a bid for HFY, and instead may have acted to the detriment of HFY’s existing shareholders.

As a contrast, Normandy refused to accept any of the Anglogold offers, telling its shareholders to wait and then later (presumably after material negotiations) revealing yet another higher Newmont bid, and then recommending accepting that higher Newmont offer. There was certainly wide speculation as to the identity of the possible counter-bidder before the first Newmont offer was made, with Newmont a rumoured candidate well ahead of it actually making its offer. And yet, no apparent pressure was applied to NDY’s counter-bidders to state their intentions, possibly because NDY did not specify that there were other possible counter-bidders, it just said “wait”.

So, it comes back to the remark of “when to speak and when to keep silent”, and in HFY’s case it appears that they should have kept silent and denied everything…or said “wait”…or should they have kept the market informed when it was clear that companies were visiting their operations as part of making possible offers…a classic “Catch-22” situation.

(At the time of writing this report, Harmony’s intended offer closure date of 8 March was still more than one month away and HFY may have since received other counter-offers).

This article has been written by Keith Goode, the Managing Director of Eagle Research Advisory Pty Ltd, who has a Proper Authority with State One Stockbroking. This e-mail address is being protected from spambots. You need JavaScript enabled to view it The opinions expressed in this article should not be taken as investment advice, but are based on observations by the author. The author does not warrant the accuracy or completeness of any information and is not liable for any loss or damage suffered through any reliance on its contents