Amcor raising good news for Rio

PORTFOLIO POINT: The market is waiting for Amcor to raise money to relieve Rio of its Alcan packaging assets.

Amcor. First to what is probably the worst-kept secret in the market. Amcor looks almost certain to be raising money in the next fortnight – if not this week – and it will bid for packaging assets owned by Rio Tinto Alcan. If you remember, this was the miner’s attempt to make itself takeover-proof as it rejected unwanted advances from rival BHP and the assets were included as part of the deal to buy the Canadian aluminium miner almost three years ago. There’ll be a capital raising and a debt package, which the market is eagerly awaiting. It is good for Rio, which still needs to raise more money. A couple of billion won’t be much compared to its last capital raising and joint venture with BHP, which yielded more than $US20 billion, but it’s another step in the right direction for the miner.

Lion Nathan. The independent expert has announced that the $12 a share bid from Kirin is fair and reasonable and in the best interests of shareholders. The stock has rallied accordingly, from about the high $11.60s up to $11.80. It is near certain that investors will get the $12-a-share on offer and it is worth noting that the bid includes a 50¢ fully franked dividend. So, for shareholders that can make use of the franking credits – and most people can these days, because you get a cash rebate on franking credits you don’t use – you could gross up that by another 17–18¢.

If you were just going to get $12, you would make about 1.7–1.8% in two months, which is an annualised internal rate of return of around about 9%, before brokerage costs. This is not a bad return, and if you add in the franking credits it’s even better. Given that stocks can move a considerable amount over a short period of time it’s not a huge windfall. But while nothing is ever 100% certain, this is as close as you are going to get.

Foster’s. Also in the brewing sector, you’ve got Foster’s still wondering what to do. Its share price moved up on speculation that Japanese brewer Asahi might be the one to have a look at it, but the share price is now drifting back. The thing about trading rumours in the market is if it doesn’t come true then stocks have a habit of just going back to where they were before the rumour started. So when you trade a rumour, you need to get on to it early and get out just as fast.

A good illustration of the problems Foster’s is facing is what is happening with Constellation Brands. Constellation – which bought Australian wine giant BRL Hardy here six years ago – has had a dreadful time trying to reorganise its business and has had several high-level executive departures and is trying to offload a number of wineries. The bigger wine companies have worked out that they just want to be managers of brands and don’t really want to own physical infrastructure like vineyards. The problem is there is no one around to buy them. Why would you?

This is going to be the big obstacle for a demerger at Foster’s; its chances of getting a buyer for its wine division at the moment are not great. It is partly an indication of the economic environment but also part of the broader transformation of wine from a cottage industry to more of an industrial process. Constellation may have been one of the potential buyers for Foster’s wine business once upon a time, but now that they have their own problems there’s no way they’ll be spending any more money in Australia.

REIT wrap. There are a few deals that have happened recently that show there is a healthy amount of optimism in the market. US hedge fund Och-Ziff Capital Management bought a 7.61% stake in GPT Group last week, paying $355.8 million for 705.6 million shares. This came a week after GPT wrote down nearly $1.16 billion of its investment in its European joint venture with Babcock & Brown. The deal is good news for GPT as now most of its bad assets are off the books, making it much cleaner. Elsewhere in the real estate sector, things are also beginning to look promising with Madison’s unsolicited bid for all the shares in Tishman Speyer Office Fund that is does not already own (it has a relevant interest in about 20.13% of the issued ordinary units) a another good sign that commercial real estate values were bottoming out. All of which suggests the worst is now behind us.

Ten Network. To cover off on a rumour doing the rounds, there is a view that Macquarie Media Group is possibly having a look at Ten Network but I’m sceptical. Ten successfully raised capital last week, which was a big contrast to its failure earlier in the year. This has been largely a function of the market-wide recovery but there is still a lot of speculation about the company’s future. CanWest’s bankers would love for them to sell their stake in Ten, and they will probably make them do it – which could happen at any time. The question is: who is going to buy a 50% stake in a commercial TV network?

As I have said before, I think the era of getting really high prices for free-to-air TV broadcasters is gone. I think the sales of the part shares in Seven and Nine a couple of years ago were the high point. Macquarie won’t pay a premium for Ten. It is more likely to wait until CanWest basically goes broke and its bankers to sacrifice the stake just to get some cash. The thing to remember with television is advertising revenue is still the same pie no matter how many different ways you slice it; developments in the digital sphere just mean there are more costs associated with production. It is a zero-sum game and I don’t believe there’s a big new audience to go out there and get.

TOTE Tasmania. TOTE has got to be the last state-based wagering entity that hasn’t been sold or floated, and it looks like they’re just going to sell it to Tabcorp, Tattersall’s, Paddy Power, Intralot or basically any of the gaming operators. What the Tasmanian government should do is float it, which would give them a better auction process and give Tasmanians a chance to own a stake in it, which was how they were handled in Victoria, NSW and Queensland. This sort of IPO would do very well, especially as we know that there are plenty of interested parties. There’s always a chance of a bidding war and that’s the best way to get a higher price.

Felix Resources. After publication it was reported that control of Felix Resources would pass to the Chinese state owned entity Yanzhou Coal. The company was trading for $16.90 before being suspended from trade and talk in the market is that the bid could be pitched at around $18 a share, putting a price on Felix of around $3.5 billion. It's another big development with our relationship with China that is getting more interesting every day.

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

nTakeover Action August 3-7, 2009
Date	Target	ASX	Bidder	(%)	Notes
06/08/09	Bowen Energy	BWN	Bhushan Steel	56.49
23/06/09	Broadcast Production Services	BKR	Prime Media Group	77.34	Offer for the balance. Ext to Aug 28.
06/07/09	Corvette Resources	COV	Cape Lambert iron Ore	19.90
03/08/09	Dioro Exploration	DIO	Avoca Resources	23.40	Dioro board rejects offer.
24/07/09	Drillsearch	DLS	Beach Petroleum	20.36	Drillsearch rejects offer.
07/06/09	Energy Development	ENE	Archer Capital	19.99	Call option by largest shareholder.
16/06/09	Gloucester Coal	GCL	Noble Group	87.71
06/08/09	Great Australian Resources	GAU	Sylvania Resources	58.79
04/08/09	Hamilton James & Bruce Group	HJB	Charterhouse	0.00
03/08/08	Heartware International	HIN	Thoratec Corp	0.00	Terminated after blocked by US Trade Commission.
28/07/09	MacarthurCook	MCK	AIMS Securities	91.68
04/03/09	Murchison Metals	MMX	Sinosteel	5.85	Cleared by FIRB to move to 49.9%
06/08/09	North Australia Diamonds	NAD	Legend International Holdings	55.00	Offer closes.
30/07/09	Pacifica Group	PBB	Bosch Group	90.90
17/06/09	Rey Resources	REY	Gujarat NRE Minerals	0.00	Rey rejects offer.
10/07/09	Royalco Resources	RCO	Anglo Pacific	31.11	Royalco board rejects offer
06/08/09	SA Metals	PPD	Sylvania Resources	91.07
Scheme of Arrangement
19/05/09	ABB Grain	ABB	Viterra	0.00	Vote September.
03/07/09	Chalice Gold Mines	CHN	Sub-Sahara Resources	0.00	Vote August 4.
06/08/09	Eircom Holdings	ERC	STT Communications	0.00	Vote Sept 15.
19/07/09	GRD	GRD	AMEC	0.00
03/06/09	International All Sports	IAS	Sportsbet	0.00	Vote late September.
11/05/09	Lion Nathan	LNN	Kirin Holdings Company	46.00	Vote Sept/Oct.
24/06/09	Lion Selection	LST	Catalpa Resources	0.00
30/06/09	Sylvania Resources	SLV	Ruukki Group	0.00	Vote October.
Backdoor Listing
31/07/09	Biosignal	BOS	RGM Entertainment	0.00
28/05/09	Dia-B Tech	DIA	Pallane Medical	0.00	$15m capital raising launched.
15/07/09	Gold Aura	GOA	Anomaly Resources	0.00	Anomaly to hold 61% at end.
03/08/09	Mobilesoft	MSO	Coventry Resources	0.00	Mobilesoft to become gold explorer.
Foreshadowed Offers
03/02/09	Felix Resources	FLX	Several expressions of interest	0.00	Discussions continue.
24/07/09	Nufarm	NUF	Sinochem Corporation	0.00	Discussions.
16/03/09	Progen Pharmaceuticals	PGL	Cytopia	5.00	Cytopia seeks removal of board.
04/02/09	Redflex Holdings	RDF	Unnamed parties	0.00	Unsolicited indicative proposals - still inadequate.
27/02/09	Ventracor	VCR	Two unnamed parties	0.00	Discussions continue.
20/04/09	Viridis Clean Energy Group	VIR	Unnamed party	0.00	Discussions.

Source: NewsBites