A deal CSR could not refuse

PORTFOLIO POINT: After much flirting with China's Bright Food Group about its sugar business, CSR found an offer from Singapore was irresistible.

CSR Limited (CSR): Media outlets were scrambling to cover this story today after it was reported in the business papers that CSR had received a formal bid from China’s Bright Food Group after much courting, somewhere in the vicinity of $1.65–1.75 billion. But then out of the blue CSR announces to the ASX that the company has done a deal with a Singaporean group called Willmar, with a bid $1.75 billion.

The good news for CSR shareholders is that the board recognised a good deal when it saw it and negotiated. Apparently there were a couple of directors who really wanted to pursue a demerger but in weak equity markets a cash sale is preferable outcome.

I’ve seen some numbers already that suggest CSR will be able to return about 80¢ to the shareholders in the form of a capital return, and that puts the building company on a very attractive price-to-earnings ratio.

Can Bright Food come back with a higher offer? I’m not sure, and a higher offer would depend on sugar prices getting a bit more support than they are now. Willmar certainly appears to want the business and it fits in nicely with its vegetable oils business, so anything could happen. We’ve seen the stock rally this morning and I still expect that it will go north of $2 as a result.

There are some risks to the deal, though. It requires signoff from the investment review boards in Australia and New Zealand, which I don’t think will be a problem but you never know. Overall, I think $1.75 billion is an excellent price. The deal still has to be done but it’s a good result for shareholders. In the meantime, watch this space.

Centennial Coal (CEY): The revised resources super profits tax, now known as the mining resources rent tax (MRRT), has sparked a bout of new deals this morning within the sector. First cab off the rank was Centennial, which this morning received a $2.5 billion bid from a Thai company called Banpu.

The bid values the company at $6.20 a share. As soon as trading began Centennial shot up 33% to $5.87 and the company has been given permission by the bidder to pay a special 4¢ per share dividend. So at current prices the stock is at a 6% discount to the $6.24 bid.

This seems a big discount, but the special dividend may not eventuate; there’s little chance of a counterbid and it could take up to four months to complete.

Banpu last upped its stake only about six weeks ago so it is interesting that it has chosen to move so quickly. One of the clearest indicators of a potential takeover is a strategic shareholding and this is a textbook example. First, Banpu went to 14.9% – which is the maximum a foreign buyer can go; then it got approval to go to 19.9%; and now it has emerged with a full bid of $6.20 a share with the board’s approval.

Note that one of the first resource companies to be targeted following a resolution to the mining tax was a coal business. Despite what the naysayers say, coal will continue to be a hugely popular source of energy in the years ahead and this is the proof.

Sandfire Resources (SFR): OZ Minerals didn’t waste any time and picked up a stake in Sandfire Resources quick smart. According to the announcement OZ now has 19.9% of Sandfire, which it bought for $3.87 a share. Importantly, it has had to pay over the odds for the stake because it is so tightly held and the investment gives it a bigger stake than South Korean steel giant POSCO, which has a 17% stake.

Sandfire has been one of those great success stories in Australian mining. About two years ago it was a tiny company and today its worth about half a billion dollars. Its run by the guys who were involved with Jubilee Mines, which, strangely enough, Xstrata bought for about $3 billion back in 2007. It’s got a good pedigree.

The feeling is that they might eventually look to take the whole thing. OZ considers this a strategic investment as it provides exposure to Sandfire's high-quality Doolgunna project in Western Australia. The share price is up 8% to $3.49, which is still well under what OZ Minerals had to pay for it. One to keep your eye on.

Mosaic Oil (MOS): Keeping with the resources sector, and Mosaic Oil received a bid from AGL Energy (AGK) last week. It’s an interesting one at 15¢ a share. There’s a scrip alternative and the bid has already been declared final. The problem with Mosaic is that it’s traded much higher than 15¢, so the directors have a pretty difficult choice here as they can’t negotiate with a higher offer because it’s already been declared final. In my mind, the directors should recommend the bid but we’ll have to wait and see.

North Queensland Metal (NQM): At the small end of the resources scale, North Queensland Metals has received a bid from Heemskirk Consolidated, notionally worth 42¢ a share. It had previously received a scrip bid from Conquest Mining – but now, the stock is definitely in play. It’s not one I would recommend people go into too much, because unless you can short-sell the other bidders, you can’t lock in the apparent premium of the bid – and these sorts of stocks are very difficult to short-sell. Still, it’s a contested bidding situation and they are always worth watching.

Macarthur Coal (MCC): You may recall that Peabody dropped its fourth bid for Macarthur back in May, blaming the resources tax. Now that the tax has been renegotiated I think there’s a good chance that Peabody and possibly Xstrata and other bidders might now come back and look at Macarthur, which will be another stock to get some close scrutiny in coming days and weeks.

Elders Limited (ELD): There were a couple of interesting rumours being shopped around last week with supposedly Wesfarmers and QBE apparently having a look at Elders. Elders is an unusual conglomerate, which sells insurance, has a banking joint venture and a big managed investment scheme operation. In reality, it just needs to be just taken apart and sold off.

Elders really has too much debt and needs to consider engaging in a trade sale to alleviate the pressure on the company. While it's possible that a bigger company such as Wesfarmers or QBE will buy it, there is every chance it will go bust and the parts could be picked up from the receiver at a much cheaper price.

'¢ '¢ '¢ '¢

Tom Elliott, managing director of MM&E Capital, may have interests in any of the stocks mentioned.

-Takeover action, June 28-July 2, 2010
Date	Target	ASX	Bidder	(%)	Notes
25/06/10	Adelphi Energy	ADI	AWE	51.20
1/07/10	Ammtec	AEC	Campbell Brothers	8.98
1/07/10	CBH Resources	CBH	Toho Zinc	71.25	Unconditional.
1/07/10	Corporate Express Australia	CXP	Staples	87.59
21/05/10	Dexion	DEX	GUD	0.00
30/06/10	DMC Mining	DMM	Cape Lambert Resources	80.07	Offer extended.
29/06/10	Gloucester Coal	GCL	Noble Group	91.54	Fall back offer in case Macarthur bid blocked.
2/06/10	Mesa Minerals	MAS	Mineral Resources	53.04
3/06/10	North Queensland Metals	NQM	Conquest Mining	19.90
13/05/10	Rey Resources	REY	Gujarat NRE Minerals	12.00	Extended to June 11.
30/06/10	Shield Mining	SHX	Gryphon Minerals	19.90
1/07/10	Tandou	TAN	Guinness Peat	24.95	Rejects new offer.
4/06/10	Wallace Absolute	WAB	Armidale Investment Company	0.00
25/06/10	Vesture	VES	Prudential Investment Company of Australia	0.00
Scheme of Arrangement
22/03/10	Arrow Energy	AOE	Royal Dutch Shell and PetroChina	0.00	Vote July.
9/06/10	Aurox Resources	AXO	Atlas Iron	0.00	Vote July.
14/12/09	AXA Asia Pacific Holdings	AXA	AMP and AXA SA	53.93	Revised scheme rejected.
4/06/10	AXA Asia Pacific Holdings	AXA	National Australia Bank	0.00	Considers part divestment to satisfy ACCC.
12/05/10	Jetset Travelworld	JET	Stella Travel Services Holdings	0.00	Stella to hold 50%. Vote August
4/05/10	Lihir Gold	LGL	Newcrest Mining	0.00	Vote July
15/04/10	Macarthur Coal	MCC	New Hope Corporation	0.00	Rejects upped offer.
18/05/10	Macarthur Coal	MCC	Peabody Energy	0.00	Unable to recommend further offer
3/05/10	MacarthurCook Industrial Property	MIF	HRPT Properties	24.42	Vote July
1/07/10	Mosaic Oil	MOS	AGL Energy	12.80
12/05/10	Transurban	TCL	Canada Pension Plan Investment Board, CP2, Ontario Teachers Pension Plan Board	0.00	Revised proposal rejected.
28/06/10	Wattyl	WYL	The Valspar Corporation	0.00
25/05/10	Westpac Office Trust	WOT	Mirvac Group	0.00	Vote July.
Foreshadowed Offers
3/06/10	Astra Capital	AKR	Taverners No 2 Unit	--	Incomplete proposal.
3/06/10	BOOM Logistics	BOL	Archer Capital, McAleese Group	10.47	Indicative scheme proposal.
3/05/10	Centrebet	CIL	Unnamed party	0.00	Discussions continue.
20/05/10	Healthscope	HSP	Private equity consortium	0.00	Revised scheme proposal received.
31/05/10	Healthscope	HSP	Unnamed party	0.00	Indicative proposal.
9/06/10	Redflex Holdings	RDF	Macquarie Group	0.00	Indicative proposal.
21/05/10	Sigma Pharmaceuticals	SIP	Aspen Pharmacare	0.00

Source: News Bites