The new-look mining tax could help unlock M&A deals previously put on hold, says Freehills partner Tony Damian.
“While there was uncertainty in the market because of the proposed mining tax, the changes made to that tax will help to unlock some deals,” said Damian. “While there is no doubt there are a range of details missing from the new tax, this version of the tax compared to the previous version is much better,” he added.
The new Minerals Resource Rent Tax or MRRT, will cut the headline rate of the tax to 30% from 40%; however, the company tax rate will be trimmed to only 29%, not 28%, as a consequence. Under the revised proposal, onshore oil and gas projects will be covered by the existing Petroleum Resource Rent tax, levied at 40%. Only iron ore and coal mines will be included in the new MRRT.
Freehills announced its involvement in three key deals this week: the A$2.5bn Centennial Coal takeover bid from Banpu Public along with CSR’s sale of its sugar and renewable energy business to Wilmar International for A$1.75bn and Metcash’s A$215m acquisition of the Franklins supermarket chain.
“Despite uncertain times, companies recognise that there are opportunities out there, they are faced with the choice of participating or passing on deals,” said Damian. “Deal activity is returning to pre-Global Financial Crisis levels, but the name of the game has changed. Before the Global Financial Crisis it was all about leveraging and private equity was the main player in M&A. I think we will now see in the next six to 12 months heightened levels of M&A activity, but not in the highly leveraged area.”
Damian said there had been a mindset change since the GFC leading to this renewed M&A activity, as during the GFC companies were focused on repairing the balance sheets, not growth. He said balanced sheets, along with more easily accessible acquisition finance opportunities in the corporate world were behind the activity.
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