On Thursday, 7th September, NZX-listed Eroad raised eyebrows by announcing their intention to raise capital at $0.70 per share. Going into the trading halt, where the raise was revealed, Eroad had been trading at $1.39 a share – the raise price is approximately half of where it had been trading. To add flavour to the story, Eroad’s directors had recently rejected a non-binding indicative offer from Canadian software firm, Volaris, for all the shares in Eroad at $1.30 per share. Volaris had previously disclosed an 18.74% interest in Eroad, having muscled its way onto Eroad’s register by acquiring stock on-market and from various institutional investors. Once the raise was announced a spokesperson for Volaris asked the question as to how the company could justify issuing new capital at $0.70 per share when Eroad previously judged that Volaris’ $1.30 offer was insufficient.

This raises the question, are there other examples of NZX-listed companies where a takeover was declined only for the target company’s share price to flounder once the offer was rejected, the way Eroad’s invariably will once it resumes trading. The answer is yes. In October 2018 Fletcher Building attempted the full acquisition of Steel & Tube Holdings at $1.70 per share. This transaction was swiftly rejected by the Board, chaired by Susan Paterson, who remains Chair of the company. Ms Paterson is also the Chairperson of Eroad. It seems history is repeating. Steel and Tube last traded at $1.17. In recent years it has paid a steady dividend stream but not to the point it would make up the difference between the current share price and the price offered by Fletchers.

All of this prompts a question, is turning down seemingly attractive takeover approaches in the name of good governance, and presumably also to extract optimal shareholder value, really worth it? The answer is probably not.