Investors, beware of the NBIO

One of the major irritants of the modern world is the Acronym. Governments and Corporates alike love them; DOGE, DEI, NASA, EPS, AM. I could go on!

One acronym is increasingly prevalent within the Stock market. It’s NBIO. And it stands for – wait for it – Non-Binding Indicative Offer.

If one reads The History of the Decline and Fall of The Roman Empire, the NBIO sits somewhere around the cycle of the first sacking of Rome.

It’s ridiculous. Some mob (usually private equity) make a sort of offer (not binding and purely indicative) for the shares in a public Company. This in turn requires the target to announce this flummery to the market and generally engage with the sort of bidder. No guarantees, nothing firm, just lots and lots of costs to fulfil the so-called obligations of Directors.

Normally, if the Directors refuse to engage the approach is leaked to Street Talk, an advertising column in the AFR for investment banks. This in turn unleashes the institutional dogs of hell and the ASX on to the Company who stand accused of not keeping the market ‘fully informed’.

Informed of what one may well ask?

I always thought that being a listed Company meant what you see is what you get. The Company is audited and in the absence of a Board of idiots or crooks (or both), the annual report and financial statements are effectively a warranty of what the Company is, and what its shares are trading at. After all, mere mortals rely on this information to buy and sell shares, so what makes the bearers of a NBIO so special?

Imagine if this craziness was to emerge in the property market. Everybody shows up on auction day but all the bids are subject to that other awful term – Due Diligence (aka DD) which really just involves everyone spending lots and lots of money with absolutely no certainty that it will guarantee the purchase isn’t a dud.

Buying things involves both risk and reward. You buy good, you do good. You buy bad, you do bad.

I suspect everything would be much better if NBIO’s were banned and bidders just had to rely on public statements and (dare I say it) an assessment of the reputation and calibre of the individuals running a Company and its historical numbers.

Just because the numbers are historically bad doesn’t mean the Company is bad, rather it’s often just poorly run. Thus, the opportunity for the buyer. Equally when the numbers are good and often the board are large shareholders, that’s a sign of high quality. Just remember – rarely does a Director foul his or her own nest…

A world without NBIO’s would be good. A world without acronyms would be Nirvana!

Hugh Robertson is a Senior Investment Adviser at Morgans Financial with over 40 years experience in the Australian Capital Markets. 

Disclaimer: Hugh Robertson, Morgans Financial Limited (Morgans) and its associates may hold securities in the companies/trusts mentioned herein. Unless otherwise stated any advice contained in this article is of a general nature only and has been prepared without taking into account your relevant personal circumstances. Those acting upon information contained in this article without first consulting one of Morgans investment advisers do so entirely at their own risk. To the extent permitted by law we exclude (and where the law does not permit exclusion, limit to the extent permitted by law) all liability for any direct, indirect and consequential losses, damages and expenses incurred in any way (including but not limited to that arising from negligence), connected with any use or access to or any reliance on information contained in this article or any attachments. Morgans Financial Limited ABN 49 010 669 726 | AFSL 235410. A Participant of ASX Group.