BREAKFAST DEALS: A bid for IAG?

Lunch isn't just for wimps. Check out LUNCH DEALS for more wheels and deals later today.

Could Wesfarmers bid for IAG? And what's NIB Holdings intending to do with its spare $130 million? Plus Challenger Financial Services Group is tipped to sell its mortgage origination business to the National Australia Bank. Elsewhere, Photon raises capital, Amcor waits in its trading halt, Brandrill and Ausdrill merge and lots more.

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Wesfarmers and Insurance Australia Group

The unsubstantiated rumour that Wesfarmers could make a bid for Insurance Australia Group has resurfaced. Wesfarmers has been speculated to have had an eye on IAG for some years now but saddled with debt from its 2007 acquisition of Coles, an offer has never materialised. It is said that QBE Insurance Group made its 2008 bid for IAG based on the fact that Wesfarmers was unable to match it. Despite being best known for its interests in Coles and the Bunnings Warehouse, Wesfarmers has long had an interest in insurance and in 1991 combined its rural insurance operations with Federation Insurance, bought from Switzerland General Insurance Company (now Swiss Re). The 2003 acquisition of Lumley Insurance in 2003 plus OAMPS and Crombie Lockwood Holdings in 2006 and 2007 have subsequently made Wesfarmers the fifth largest insurance company in Australasia. The rumour has it that Wesfarmers could offer IAG, currently trading at $3.84, between $3.75 and $5 per share in cash and scrip. Both companies have large and often vocal retail shareholder bases so an offer would have to be supported from both sides to work. Wesfarmers could otherwise be interested in the insurance operations of Suncorp-Metway.

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NIB Holdings

Elsewhere, health insurance provider NIB Holdings has said it is looking for acquisitions following its $23.8 million full-year net profit announcement yesterday. While the company said it plans to also grow organically, it said it wanted to become a "third pillar" next to market leaders Medibank Private and BUPA, and could look to acquire smaller mutual funds. Newcastle-based NIB has nil debt and $130 million sitting in the bank. Since it was listed by JPMorgan in late 2007, NIB has planned to grow by acquisitions, but has not yet made any purchases, being outbid for Manchester Unity last year by HCF, Australia's third biggest health insurer. Indeed, in October last year NIB became a takeover target itself, knocking back an offer from an undisclosed party that valued the company at between $1.15 and $1.20 a share. NIB, which began as a health insurance provider for BHP steelworkers, closed yesterday at $1.05, up 11.7 per cent. Earlier this year it was trading under 80 cents a share.

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Challenger Financial Services Group and National Australia Bank

Challenger Financial Services Group yesterday entered a trading halt ahead of what is tipped to be a sale of its mortgage origination business to the National Australia Bank. The Australian Financial Review reports that Challenger, which has $18.8 billion in mortgages under management and $73.2 billion under administration, could sell the division for between $250 million and $300 million. The Fin says other rumours include a purchase of an annuity book from an overseas group or a mortgage deal with a regional bank. If the deal is with NAB, it will boost the bank's ranking among its peers in the home loans game and will also consolidate, more generally, the dominance of the big four lenders in retail mortgages and lending products. NAB has otherwise excelled in business banking as competitors Westpac and CBA in particular bought the RAMS and Wizard Home Loans brands respectively. Since raising capital last month NAB has continued to acquire smaller businesses, including the $99 million purchase of stockbroker JBWere. NAB had earlier bought Aviva's Australian business for $825 million and is speculated to be eyeing further acquisitions in Australia and – intriguingly – Islamic banking, possibly in the Middle East.

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Photon Group

Following its failed boardroom coup at Dark Blue Sea, acquisitive marketing communications company Photon Group has announced it will raise a $115 million war chest, sorry, it will raise $115 million in funds to reduce debt. It will be hard to see Tim Hughes' sprawling PR and e-commerce empire sit still however, with or without concerns from ANZ about its debt levels. After all, "strengthen the balance sheet" does not preclude further takeovers. The raising comprises a $26.6 million placement and a $97.9 million rights issue, both fully underwritten by Morgan Stanley, which will earn a cool four per cent fee for its efforts. Not that that will be too difficult, with Hughes and Reg Grundy's RG Capital committing to their full 33 per cent participation. Curiously for a company that employees some 6,000 marketing and PR hacks, nobody picked up the error on page one of the offer document, which said funds would be placed at $1.85 million per new share. The non-renounceable rights issue component otherwise allows eligible shareholders to subscribe for one new share for every two held at $1.50 each, a 36 per cent discount to Friday's close.

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Amcor

Speaking of capital raisings, Amcor remains in a trading halt ahead of an expected $1.6 billion equity raising to help finance the purchase of Rio Tinto Alcan's packaging assets. As detailed in Breakfast Deals yesterday, the raising is expected to be via a rights issue at around $4.30 per share and coupled with a debt capital issue arranged by Goldman Sachs JBWere.

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Brandrill and Ausdrill

Speaking of yesterday's deals, drilling services firms Brandrill and Ausdrill have come out of their trading halts with a deal for Ausdrill to acquire its smaller rival for $45 million in scrip. While a rival bid could come around the corner, this is unlikely considering the implied valuation of the deal and the fact that Brandrill has previously fielded takeover offers worth a lot less. For its part, Ausdrill, advised by Argonaut Capital, is said to be building its defences against a takeover from Macmahon Holdings, itself in the sights of still-larger Leighton Holdings, which has refused to resign an agreement not to increase its stake in Macmahon beyond 19.9 per cent. The mining services industry has been under siege of late with private equity firms recently approaching Emeco and Boart Longyear tapping the market yesterday to the tune of $766 million. If and when the mining supercycle restarts plenty of people want to be the ones selling the shovels, as it were. Brandrill is advised by Gresham Partners.

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Classified information

Online automotive classifieds business Carsales.com.au has released the details of its September 10 initial public offering, confirming that the offer is at $3.50 per share, as speculated, or a whopping 21.9 times earnings or 14.5 times EBITDA. CarSales has undoubtedly been a success story for its owners, including private equity-owned PBL Media, which is keeping its 49 per cent stake in tact, but to many such valuations smack of dot-com-era exuberance. Carsales aims to raise $248.7 million in the deal. Speaking of dot-coms, job website Seek's plans to increase its interest in international student services company IDP Education has failed, with IDP's university shareholders rejecting its offer of $30 million for an additional 10 per cent stake. The Australian Financial Review reports that Education Australia, a consortium of 38 universities, sought $40 million for the stake, which would have increased Seek's shareholding in IDP to 60 per cent. IDP helps foreign students gain places in Australian universities and conducts English language tests among other things. It has been at the forefront of efforts to rebuild Australia's damaged reputation among Indian students following a series of highly-publicised bashings in Melbourne and Sydney.