To scheme or not to scheme : comparison of scheme of arrangement acquisitions with takeover bids

Schemes of arrangement have been available in Australia since Federation and were initially used as a voluntary administration mechanism. However, while schemes have always been available as an acquisition method through an application of judicial discretion, it has only been in the last 15 years that schemes have become widely acknowledged in the corporate continuity and by the courts as a distinct alternative to bid transactions under Chapter 6 of the Corporations Act. Despite this phenomenon, the characteristics of market participants who use this method to effect corporate control transactions have not been analysed quantitatively in the academic literature. The choice of takeover Method is an important determinant in a successful takeover strategy. This study ll1vestigates the characteristics of targets and bidders who engage in schemes of arrangement with those that undertake bids through a comparison of prior financial performance and transaction specific variables. A takeover method prediction model is also constructed. The results highlight that prior operating performance does not influence them choice of takeover method. Strong negative relationships are found between scheme of arrangement acquisitions and the takeover characteristics of bidder toehold, hostility, bid premium and the purpose of acquisition. The evidence suggests that the choice of takeover method employed is based on the relative bargaining position of the bidder at the time of the acquisition.