BREAKFAST DEALS: Airports swoop

The Future Fund could face competition for its NT Airports bid, while a likely sale from Gina Rinehart raises eyebrows.

The Future Fund could have some competition for some of the Australian Infrastructure Fund assets from minority shareholders. Gina Rinehart might have sold out of Mineral Resources, but to who? Meanwhile, Rio Tinto isn’t selling out of Mozambique (at least for the moment), there’s movement in agribusiness and the ACCC is said to be suffering from capacity issues as a FOI request pertaining to the Qantas-Emirates deal gets knocked back.

Future Fund, Industry Funds Management, Australian Infrastructure Fund

The Future Fund could have a fight on its hands in the battle for the Northern Territory Airports group as part of its $2 billion deal with Australian Infrastructure Fund.

According to The Australian, Industry Funds Management is thinking about matching the Fund’s $100 million valuation for the Darwin, Alice Springs and Tennant Creek stake that AIX currently has in its possession. Minority stakeholders in AIX’s Australian assets have pre-emptive right, which means they will collect AIX’s stake provided they match the Fund’s valuation.

This comes in the wake of accusations levelled at the Fund that it is deliberately undervaluing stakes it’s less interested in or that don’t have pre-emptive rights (European assets) in order to effectively outbid minority stakeholders.

The $100 million valuation for the Northern Territory assets is far less than the $127 million independent valuation from last year.

Herein lies the problem with the ‘gaming practice’ the Fund has allegedly engaged in. In order to create ‘room’ for the higher valuations on assets most coveted, you leave yourself vulnerable to being matched elsewhere.

Industry Funds Management recently picked up a 35.5 per cent stake in Manchester Airports Group, which is one of the United Kingdom’s largest airport operators.

Gina Rinehart, Mineral Resources

The relationship between Gina Rinehart and Mineral Resources was put centre stage on Friday as a $150 million block trade went through around midday, sparking reports that the billionaire has sold out.

The stock dropped three per cent to close at $10.01 following the sale at $10 a share. Investors weren’t just tweaking their valuations on the back of the news, but contemplating the possibility that Minerals Resources won’t be involved in Rinehart’s Roy Hill project after all.

This is a premature conclusion, but even if it is true it’s not necessarily bad news for Mineral Resources. For instance, everyone is concerned with what Rinehart is up to, but uninterested in who the buyer of Rinehart’s stake is.

A block trade at a discount could mean that a single buyer had agreed to take Rinehart’s entire stake off her hands, but only if she gave a little room of price.

A single buyer could end up being a net positive for Mineral Resources, depending on whether they’re a passive investor or one looking at establishing partnerships.

All this is pure speculation of course. We must await the substantial shareholder notice.

Rio Tinto, Riversdale Mining

Rio Tinto has reportedly ruled out selling its troublesome Mozambique coking coal assets, at least for the moment.

The Australian understands that Rio has been forced to promise the Mozambique government that it won’t sell out of the unit that caught a $US3 billion ($2.8 billion) writedown after just 19 months in the Australian miner’s hands. The writedown ended up contributing significantly to the departure of Rio boss Tom Albanese.

That means if Albanese’s replacement Sam Walsh wants to remedy the Mozambique situation, which includes assets on the Moatize Basin, it means partnerships.

Brazil’s Vale and London’s Anglo American are considered to be the most obvious potential partners as they both boast operations on the same basin. A Chinese partner looking for access to cheap coal would also be suitable.

GrainCorp, Archer Daniels Midland, Wilmar International, RuralCo

The month of January is traditionally the quietest in regards to company deals as key staff take breaks from their number crunching. But the silence over the tilt at GrainCorp by American giant Archer Daniels Midland is particularly noticeable.

When last we heard, ADM was none too pleased with rejection by GrainCorp to its improved $2.8 billion offer. The fact that ADM has almost 20 per cent of its target makes the rejection an ongoing issue.

Agribusiness is largely expected to be the hot topic in Australian M&A this year, evidenced lately by the report that Wilmar International has flagged acquiring almost 800 hectares of land south of Townsville in a bid to secure supply.

Singapore’s Wilmar, which secured CSR sugar operations in mid-2010, is 15 per cent owned by ADM.

Additionally, the sale of farm giant Cubbie Station to a foreign consortium, funded largely by Chinese textile company Shandong Ruyi, was reportedly finalised late Friday night.

When it comes to GrainCorp, much of the balance of power will be determined by the strength of Australian crops. The better the results, the more credible GrainCorp’s argument will be that the company isn’t so vulnerable to the elements.

In other agribusiness news, Ruralco has hired former senior Healthscope manager Ulf Lindskog to assist in its bid for the Elders rural services business. The man in question is a confessed inside trader.

Qantas Airways, Emirates, Virgin Australia, Tiger Airways

The competition regulator has reportedly come under criticism for not providing adequate transparency to scrutinise the claim by Qantas Airways that its international business faces terminal decline without the Emirates alliance.

According to The Australian Financial Review, independent senator Nick Xenophon has received correspondence from the Australian Competition and Consumer Commission indicating that his request that relevant documents to the claim be handed over under freedom of information would take 991 hours of staff time.

"The practical refusal reason is that the work involved in processing the request would substantially and unreasonably divert the resources of the ACCC from its other operations,” the regulator’s FOI officer says in a letter to Xenophon, according to the AFR.

The ACCC has effectively signalled the Qantas-Emirates deal is a fait accompli, having given the proposal interim approval.

The regulator is also sitting on the low-cost carrier Virgin Australia deal to purchase a 60 per cent stake in lowest-cost operator Tiger Airways. That deal is hardly a lock at the moment.

Wrapping up

Leighton Holdings subsidiary Thiess has picked up a five-year contract with Sydney Water for operation and facilities maintenances services. The deal is worth $175 million.

Meanwhile, Westfield Group looks set to face questions about its $440 million Brazilian investments thanks to rumours that it's having problems with its joint venture partner.

And finally, management of Mighty River Power has met with fund managers in Sydney and Melbourne, according to The Australian Financial Review, as the New Zealand government’s arm looks at a $NZ1.5 billion ($1.2 billion) equity raising for a listing on the NZ stock exchange and the ASX.

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles