At Australian Edge, our goal is to grow our subscribers’ wealth over the long term by identifying high-quality companies that offer sizable and growing dividends. While we love to collect a fat payout, we also enjoy healthy capital appreciation.

And this week, while monitoring our holdings, our eyes nearly popped out of our heads when we noticed that shares of Toll Holdings Ltd (ASX: TOL, OTC: THKUF, ADR: THKUY) had suddenly surged 47.5% in local currency terms.

We had only just added the transportation and logistics company to our Aggressive Holdings on Jan. 20, so it was shocking, to say the least, that the market had already rewarded us in such a dramatic manner.

Our first thought was that the price action must be driven by a takeover bid. Sure enough, we soon learned that Japan Post Holdings, a Japanese conglomerate that offers both postal and financial services, had offered AUD9.04 per share to acquire the firm in an all-cash deal worth USD5.1 billion.

Based on Toll’s price at initial recommendation, that represents a gain of 52.7% in local currency terms. Not bad for having held the stock for just a few weeks. And we’ll also get to collect an AUD0.13 per share fully franked interim dividend before the deal’s expected close in early June.

Of course, we can’t count on offers with such premiums for all of our holdings–nor would we want that to happen. After all, our primary mandate is to find securities that can generate a steady stream of income over the long term.

Although we’re happy when another company wants to pay us a premium for our shares, it also means that we’re losing a steady dividend payer and must now endeavor to find another.

But while no one can predict which of their holdings will be subject to a takeover offer, our emphasis on selecting high-quality companies means that some of our other recommendations could eventually be acquired at similar premiums.

In fact, the volume of mergers and acquisitions in Australia is poised to pick up as a result of the lower exchange rate.

During the resource boom, the Australian dollar traded as high as USD1.10, thanks to the perception that the country’s currency is backed by hard assets. But with the crash in commodities prices and the country’s central bank back in easing mode, the aussie is currently trading near USD0.78.

As investors based in the U.S., the decline in the exchange rate has been painful, eroding what would otherwise be solid gains in many of our recommendations, while paring the value of their payouts. Though the S&P/ASX 200 is currently trading near a post-Global Financial Crisis high, it certainly doesn’t feel that way in U.S. dollar terms.

But for new subscribers or those with new money to invest, the fall in commodities prices coupled with the lower exchange rate offers an opportunity to buy solid companies with double coupons.

That’s because the share prices of many resource companies have fallen sharply, with their value further enhanced by a lower exchange rate. That’s a rare double discount—precisely the sort of value that investors lament having missed once the cycle turns.

And retail investors aren’t the only ones who can take advantage of this opportunity. While diversification away from Japan’s slowing domestic market was a key driver of Japan Post’s bid for Toll, the lower exchange rate was also a factor.

In fact, analysts believe that there could be a rise in Australian deals pursued by foreign acquirers.

Like Japan Post, a number of other Japanese companies are looking for opportunities to diversify at the right price.

“Japan Inc.’s appetite for Australian companies has been growing, particularly in the service sector,” said Koichi Haji, an executive research fellow at NLI Research Institute in Tokyo, in an interview with Bloomberg. “In Australia, they’ve got natural resources and political stability, as well as proximity to the Southeast Asian region.”

According to Bloomberg, Australia returned to sixth place on Ernst & Young’s global survey of preferred M&A destinations in October last year. In the prior year, by contrast, it had dropping out of the top 10 because the Australian dollar remained stubbornly high even though commodities prices had already started falling.

As Toll Chairman Ray Horsburgh said in the company’s conference call on Wednesday, the deal suggests that companies are starting to value Australian skills and knowledge, and not just the country’s abundance of resources.

The Toll deal is the largest-ever acquisition of an Australian company by a Japanese firm. We expect more to come.

Portfolio Update

By Khoa Nguyen

While Toll’s board unanimously approved Japan Post’s cash offer, it still needs 75% shareholder approval, and a vote is expected to take place in May 2015.

The acquisition also requires regulatory approval, which means this is not quite a done deal. Longtime subscribers will recall that Australia’s Foreign Investment Review Board (FIRB) rejected Archer Daniel Midland’s $3.4 billion bid to acquire Graincorp due to political reasons back in late 2013.

So it remains to be seen whether any political considerations will weigh on regulators’ approval of the sale of Australia’s largest transport and logistics company to a Japanese firm.

Also this week, Toll reported fiscal first-half revenues fell 2.6%, to $3.4 billion. Total operating EBIT (earnings before interest and taxes) fell 4%, to $248.8 million, while net profit after tax fell 22.3%, to $106.5 million.

The company said it continues to face challenging economic conditions in Australia, with lower commodity prices leading to lower business and consumer sentiment.

Its Australia business was hit particularly hard due to lower volumes, mainly from customers in the mining industry. Revenues declined due to completed contracts and LNG projects from the prior period.

Toll said that although the first quarter was weaker than it had expected, it anticipates an improving trend in the second quarter to carry on into the second half of fiscal 2015. Management expects growth in operating earnings for the full year.

Wesfarmers Ltd (ASX: WES, OTC: WFAFF, ADR: WFAFY) reported total revenues rose 4%, to $24.96 billion in the first half of fiscal 2015.

Net profit after tax (NPAT) fell 3.7%, to $1.07 billion, while earnings per share fell 2.6%, to $0.94.

Adjusted for the $3 billion sale of its insurance business and the sale of Air Liquide in 2013 and 2014, NPAT rose 8.3% from $999 million in the same period last year.

The company’s sales and underlying earnings growth were driven by its retail assets such as Coles, Bunnings, Kmart and Officeworks, while its industrial portfolio continues to struggle due to lower commodity prices.

Its Cole revenues improved 2.8%, to $15.2 billion, as earnings rose 8.8%, to $912.7 million. Kmart revenues expanded 5.2%, to $1.9 billion, as earnings grew 11.2%, to $225.3 million.

The performances of its home improvement business Bunnings and office supplies business OfficeWorks were especially strong.

Bunnings had 11.2% revenue growth, to $4.49 billion, and earnings before interest, taxes, depreciation and amortization (EBITDA) improving 10.2%, to $582 million.

Margins fell to 12.5% from 12.7% as the company invested more in stores and services to put competitive pressure on its industry rivals. Management says it wants to focus on winning more business and increasing volumes for long-term growth.

Bunnings’ same-store revenue was up 9.1%, while total store return rose 11.7%. In fiscal 2015, Wesfarmers expects to open roughly 20 additional warehouses. Its OfficeWorks business also saw strong store growth, and it’s expected to add three more stores this year.

Revenues from the resources segment fell 9.8%, to $537 million, and EBITDA declined 20%, to $84.2 million, as coal profits fell 40.7%, to $35 million. This was offset by an increase in coal production of 4.4%, to 7.78 million tons, and added cost reductions. The company expects low export coal prices to continue in the second half of fiscal 2015.

Wesfarmers announced an interim dividend of AUD0.89, a 4.7% increase from last year. This increase reflects its underlying earnings growth and strong cash generation. The interim dividend will be paid on April 2, 2015, to shareholders on record as of Feb. 26, 2015.