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Gateway tyrekickers sink teeth into Hometown's pre-bid agreements

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If you believe the market is never wrong, Hometown's indicative bid for Gateway Lifestyle Group may signal just the start of a bigger takeover story.

Gateway shares were trading at $2.15 at lunchtime on Friday, a stone's from Hometown's $2.10 a share approach and well clear of last week's close ($1.81).

Analysts have been quick to name other potential Gateway suitors, including Canada's Brookfield and Singapore's GIC, and ASX-listed Ingenia Communities Group.

Gateway Lifestyle, headed by CEO Trent Ottawa (centre), was thrown into the spotlight this week with a $2.10 a share indicative bid.  Anthony Johnson

So far only Hometown has put a bid to Gateway's board, and no decision has been made whether to grant the suitor due diligence.

Rival potential suitors and their lawyers have been quick to pick through Hometown's offer.

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Their interest is on pre-bid agreements struck with four of Gateway's largest shareholders Perennial Value Management, Colonial, WaveStone and Maso Capital.

The pre-bid agreements mean Hometown has its hands on a 17.77 per cent stake via a string of options.

But as M&A bankers and lawyers know, not all pre-bid agreements are created equally. They can range from watertight in contested situations, to wafer thin.

Hometown's appear unique. Hometown can exercise the options and take the 17.77 per cent stake if the underlying securityholders do not support the deal within five days of announcement, as you would normally expect.

The different bit is that if the agreements are as tight as what Hometown and its advisers Morgan Stanley and Minter Ellison reckon, then the pre-bid stake is as good as a blocking stake should a higher offer emerge elsewhere.

Hometown's agreements are structured as call options that may be exercised in the event of a competing proposal being announced. So should Gateway gets into an auction and another party wins, Hometown can call the options and sit on the 17.77 per cent stake to block a rival's offer.

CLSA analysts pointed this out to clients this week. The analysts said given average voter turnout for schemes is around 62 per cent, Hometown's potential 17.77 per cent stake would potentially be enough to block a competing scheme the required 75 per cent vote threshold.

Alternatively, if Hometown decides to walk away it can do so without having committed the $115 million-odd that would've been required to raid Gateway's register for the 17.77 per cent stake.

It's another thing for Fort Street and Herbert Smith Freehills-advised Gateway, and its other tyrekickers, to think about.

Sarah Thompson has co-edited Street Talk since 2009, specialising in private equity, investment banking, M&A and equity capital markets stories. Prior to that, she spent 10 years in London as a markets and M&A reporter at Bloomberg and Dow Jones. Email Sarah at sarah.thompson@afr.com
Anthony Macdonald is a Chanticleer columnist. He is a former Street Talk co-editor and has 10 years' experience as a business journalist and worked at PwC, auditing and advising financial services companies. Connect with Anthony on Twitter. Email Anthony at a.macdonald@afr.com
Julie-anne Sprague co-edits our Rich Lists and covers entrepreneurs, wealth creation and investments. A senior journalist in our newsroom, Julie-anne has covered politics, property, agribusiness, retail and stockmarkets in both the UK and Australia. Connect with Julie-anne on Twitter. Email Julie-anne at jsprague@afr.com

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