AUSTRALIA Trends and Developments Contributed by: Alberto Colla, Keith Tan, Hugh McDonald and Dean Zinn, MinterEllison
cash at a point in the cycle where they may per - ceive the potential for higher future value. Under a stub equity structure, target shareholders are offered a choice of all cash consideration, stub equity consideration or a combination of both. It is typically designed to promote equality of treatment for all target shareholders where the acquirer is principally focused on offering one or more founders or executives of the target the opportunity to retain or roll over their equity inter - est in the target. It is for this reason that the use of stub equity is particularly popular amongst private equity acquirers as this, in turn, allows the founders / key shareholders (who may be able to assist the bidder and its management create greater value in a privatised structure) to retain an ongoing investment in the target once it is privatised. There is also the potential benefit of capital gains tax roll-over relief for holders of stub equity. In other words, a stub equity structure may assist in persuading key shareholders (including board members) to support a control transaction that they may not otherwise support. It may also help convince a target’s board of directors (or independent board committee), who may have concerns about differential (unequal) treatment between: • on the one hand, founders, key executives and other insiders who are given a roll-over opportunity; and • on the other hand, public shareholders who are only offered the all-cash alternative. A stub equity structure that is equally open to all shareholders of the target (not just insiders) avoids the risk of creating a separate class for scheme voting purposes.
To the extent target shareholders take up the stub equity alternative, this reduces the amount of cash the bidder must pay to acquire the tar - get. Therefore, from a bidder’s perspective, stub equity reduces the bidder’s overall cash fund - ing requirement (although this is unlikely to be a material driver for a bidder devising a stub equity structure). Historically, retail participation in the stub equity offer has been minimal, and we expect this to continue in stub equity transactions in 2025. Energy, mining, utilities and industrials Transactions involving companies in the ener - gy, mining, utilities, and industrials (EMUI) sec - tors represented approximately one-third of all announced public M&A transactions and drove dealmaking activity in an otherwise subdued period. A principal driver of activity in the energy and utilities sector is the overarching push towards adopting renewable energy sources in response to global net-zero emissions targets and sus - tainable energy policies. This was reflected by Japan-based J-POWER’s AUD380 million acquisition of renewable energy generation and storage provider Genex Power and Singapore- based Seraya Partner’s AUD1.03 billion acqui - sition of MMA Offshore, which provides marine and subsea services to offshore wind farm pro - jects. These acquisitions continue the recent trend of foreign investors seeking to participate in and benefit from Australia’s rapid energy tran - sition program, including Brookfield/EIG’s failed AUD18 billion takeover of integrated energy behemoth Origin Energy in 2023. Brookfield has since pivoted to acquire Neoen SA, a renewable energy company which operates 15 generation and storage assets in Australia and has 48 pro - jects in varying stages of development.
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