A fresh coat for Alesco?

PORTFOLIO POINT: There’s a strong chance Dulux will boost its bid for Alesco, meaning it could be a good time to buy the target, particularly at its current price.

Alesco (ALS). At the moment, all eyes are awaiting the bidder’s statement from Dulux (DLX), but I think it’s almost certain Alesco will reject $2 a share, and there’s a good chance of an increased bid here.

Alesco’s share price has drifted off a peak of $2.10-11 last week, and it’s now back at $2.05-06, closing at $2.06. This is within a 3% range above the bid, and I think it’s good buying at these levels.

The bid is in a kind of interregnum period at the moment. Alesco will get an independent expert’s report, and a lot will depend on that. It could be two to three weeks away, as these usually take a month to prepare, but if that report comes out and says the company is worth, say, $2.25 a share, the share price will almost certainly rise (maybe not to that level, but perhaps $2.10-15).

This period, where the valuation of the company is perhaps a little uncertain, is usually a good time to buy.

The potential for other bidders to come in is there, but Dulux has already snapped up 19.95% of the company and this makes it very difficult for others. I think the most likely outcome for a bid increase comes from Dulux, and I think there’s a strong chance it will do this.

Coalworks (CWK). The Whitehaven Coal (WHC) bid for Coalworks is very complicated, but it makes sense for Whitehaven to go through with this, and there’s a good chance of an increase here as well.

The Coalworks board came out today and rejected the $1 a share offer, saying it undervalues the company, and calling the bid “inadequate and opportunistic”. This only increases the likelihood that Whitehaven will have to lift its offer.

Whitehaven already owns 17.3% of the company, as a result of picking up Nathan Tinkler’s Aston Resources and Boardwalk Resources earlier this year.

The bid is $1 a share (cash), and Coalworks shares closed at $1.03 today, so while you can buy the stock in that $1.025 to $1.03 range, it’s in that 3% zone premium to the bid.

There’s one broker – BBY – that says it’s worth up to $2 a share, and some independent Coalworks shareholders are saying the bid undervalues the company, which is good. It wouldn’t cost much to improve the bid and I think doing so makes a lot of sense.

Whitehaven has said it would look to sell Coalworks’ 33.3% stake in Orpheus Energy (OEG), and if they sell it to someone who wants to buy the whole thing, that’s a takeover target possibility – but it’s only small.

Will coal M&A activity continue? We’ve seen some ritzy valuations in the past year, and it’s hard to say whether that will continue, but you might see smaller companies being mopped up by bigger ones, and that’s what’s happening here.

PMP (PMP). There has been talk of a bid between 68c and 78c a share, but the important thing is it is still only a rumour of a bid.

The share price shot up when the news first came out, and I recommended leaving this one alone until more information was available, and while the share price has pulled back considerably, I still don’t think people should go near this.

From 43.5c, where it closed today, to 68-78c looks like a fantastic percentage, but if the bid doesn’t materialise, it will be 45c down to 30c or less (where it was prior to the bid) very quickly. You might make a third, but you might lose a third, and I don’t like those odds.

PMP knocked back a bid of $2 a share a few years ago. The stock had fallen to 25c – that’s an 87% fall in value. The fact is, it’s just an industry where the long-term outlook doesn’t look good. If you’re desperately hoping for a takeover, I would wait until a firm bid is there. You may end up paying more as a result, but it’s too risky at the moment.

Billabong (BBG), Pacific Brands (PBG). Billabong has just shown the CEO the door, and appointed former Target managing director Launa Inman. While management instability is sometimes a recipe for a takeover, in this case I’d say it’s just a new chief executive.

There was interest from TPG at $3.30 a share, and Billabong closed today at $2.30, but the problem is that Gordon Merchant, who owns a big stake, has said he will not accept anything less than $4. If he’s true to that statement, and as a founder he probably means it, I can’t see anyone coming back unless they’re prepared to pay north of $4.

At the moment, I think any interested party would want to sit back and see if Inman can improve the business.

Pacific Brands is another company in a similar position. As I understand, talks between PacBrands and KKR are pretty much over, so it’s just back to business for these companies.

Flinders Mines (FMS). Finally, while nothing new has happened with the broken Flinders Mines bid, which you may recall was caught up in a weird Russian court challenge, there is still some faith this deal might re-emerge.

The arm of UBS that acts on behalf of hedge funds recently increased its stake in Flinders from 7.1% to 8.2%. What this tells you is that a chunk of the hedge fund community, and UBS is a big broker to hedge funds, have been increasing their stake. So obviously there’s some faith this deal could still happen.

On the other hand, the sharemarket closing at 19.5c a share today, versus a bid of 30c, is telling you the opposite.

When it was at 24c, I said the deal was over, and to get out, and although the upside/downside ratio looks OK at the moment, you’re dealing with a regulatory system – a Russian appeals court – about which I know little and information is hard to obtain.

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

-Takeover Action May 7-11, 2012
Date	Target	ASX	Bidder	(%)	Notes
1/03/12	Accent Resources	ACS	Xingang Resources	60.65
30/04/12	Alesco	ALS	Dulux Group	19.96
10/05/12	Brockman Resources	BRM	Wah Nam International	86.1
10/05/12	Coalworks	CWK	Whitehaven Coal	17.3
9/03/12	Curnamona Energy	CUY	Havilah Resources	45.38
30/04/12	Eureka Energy	EKA	Aurora Oil & Gas	2.79
19/04/12	Hastings Diversified	HDF	APA Group	20.71	Ext to Apr 30
10/05/12	Hydromet	HMC	Simon Henry	63.01
9/05/12	Ideas International	IDE	Gartner Australia	51.78	Pre-bid acceptances
10/05/12	Magma Metals	MMW	Panoramic Resources	46.85	Ext to May 10
10/05/12	Scandinavian Resources	SCR	Hannan's Reward	83.99
18/04/12	Somerton Energy	SNE	Cooper Energy	19	Pre-bid agreement
24/04/12	Thakral Holdings	THG	Brookfield Asset Management	0
4/05/12	UCL Resources	UCL	Minemakers	14.65	Ext to May 22
Schemes of Arrangement
27/04/12	Gloucester Coal	GCL	Yancoal (Yanzhou Coal)	64.5	64.5% holder Noble Group in favour. Vote Jun 4.
10/04/12	Ludowici	LDW	FLSmidth	22	Vote May 31
30/04/12	Spotless Group	SPT	Pacific Equity Partners	19.64	Vote late Jul
11/10/11	Sundance Resources	SDL	Hanlong Mining Investment	17.99
Reverse Takeover
11/05/12	Millepede International	MPD	Angline Pastoral Pty Ltd	0	Angline and shareholders to control 67.6%. Vote May 23
Foreshadowed Offers
28/02/12	Goodman Fielder	GFF	Wilmar International	5.00-	Press speculation
27/04/12	PMP	PMP	Unnamed party	0	Non-binding indicative offer

Source: News Bites