BREAKFAST DEALS: ANZ's raw deal

ANZ Bank reveals it may have to sell some of its stakes in Asian banks, while the battle for Hastings heats up.

ANZ Banking Group says Australia’s top financial regulator could effectively force it to sell some of its minority stakes in Asian banks, pushing chief executive Mike Smith’s dream of a super-regional bank further away. Elsewhere, the DuluxGroup-Alesco Corporation takeover saga enters another bewildering chapter, while the plot for Hastings Diversified Utilities Fund has just gotten really interesting. Meanwhile, Paladin Energy has done a deal that looks like a gamechanger and an asset sale at Elders has got investors up and about.

ANZ Banking Group

ANZ Banking Group might have to sell some of its stakes in Asian banks if the industry regulator doesn’t loosen strict capital requirements.

That’s what has come out of an interview chief executive Mike Smith did with Reuters, potentially stymieing his ambitions to turn ANZ into a super regional bank.

The Australian Prudential Regulation Authority will require banks to hold more capital against minority stakes.

Given the global phenomenon stemming from Basel III, this is hardly unique. But ANZ claims that it’ll be forced to hold more capital than its international competitors.

"It does mean you have to look at your options,” Smith told Reuters in the interview.

The ANZ boss went on to say that his bank has to decide whether to saddle investors with a lower return on equity from the Asian business for strategic reasons for the five years at least, or sell some of them down and find another way to conquer Asia.

ANZ has stakes in several Asian banks, including China’s Shanghai Rural Commercial Bank, Indonesia’s PT Panin Bank and Malaysia’s AmBank.

Additionally, Smith said in March that ANZ is looking for bigger operations in Burma, Thailand, Korea and Japan, as well as parts of the Middle East, but not through acquisitions.

All this is now in question to some degree. The more ANZ is forced out of minority stakes in Asia, the greater the need for Smith to secure a big acquisition, probably from a bank in Europe, to realise his Asian aspirations.

DuluxGroup, Alesco Corporation

Paints company DuluxGroup and garage door maker Alesco Corporation have emerged from trading halts unable to boast of a $200 million takeover deal.

The sitcom continues.

Both companies confirmed that discussions have taken place over the details of the deal, but Alesco spoke most openly in its statement about the possibility of its dividend being increased substantially.

The idea, as reported previously, is to stack Alesco shareholders with franking credits that would effectively be paid for by Dulux.

But there’s a problem. Dulux has already declared its bid of $2.05 in cash and up to 18 cents in franking credits "best and final”. If the offer is altered, it’s likely to fall foul of the Australian Securities and Investments Commissions and the Takeovers Panel.

Hastings Diversified Utilities Fund, Pipeline Partners Australia, APA Group

Pipeline Partners Australia has taken the battle for Hastings Diversified Utilities Fund up yet another notch by increasing its all cash offer to by 4.3 per cent.

The consortium including Utilities Trust of Australia, a fund managed by HDF’s managed Hastings Funds Management, and Canadian fund manager Canada’s Caisse de dpot et placement du Qubec, is now offering $2.43 a share.

Rival bidder APA Group looked to have seized the upper hand earlier this week after lodging an improved $2.51 cash-and-scrip bid, 62 cents of which was cash.

PPA had two days to think about it and has decided to strike back.

This news makes two things abundantly clear.

The first is the value of cash in an uncertain equity environment. Theoretically, the APA bid is still superior with the company’s share price falling to levels that bring its cash-and-scrip offer down to $2.45.

But the target’s board’s independent directors are continuing to recommend that shareholders accept the HDF offer in the absence of a superior proposal, with the significant scrip proportion of APA’s offer the tripping point.

"In contrast, the PPA offer is all cash and therefore provides a more certain offer price,” HDF said in a statement.

The second point is that the worries that UTA’s involvement was a sign that the managers of HDF were creating a dummy bid of sorts to get more value from APA must be seriously questioned.

Quite simply, if this is all an elaborate plot by Hastings Funds Management, or a calculated bet at least, to get APA to pay more for one of its managed assets, it’s high stakes.

Paladin Energy

Troubled uranium miner Paladin Energy is now reviewing its strategic options after all but securing a six-year supply deal with a "major” but unnamed utility.

In a statement to the market, Paladin said it would supply the utility with 13.73 million pounds of uranium oxide from 2019 to 2024. The material will come from its operations in Africa, or a project yet to be developed.

Crucially, Paladin is getting $US200 million ($191 million) upfront to secure its supply. The money will be made available through tranches and completed no later than January 31, 2013.

The timing could hardly be better. Paladin has $US134 million in convertible bonds to pay off in March next year. That deadline has been hanging over the stock like a noose, with the company occasionally being thrown up as a stressed takeover target.

Now, Paladin is "re-evaluating its strategic options”. For Paladin to be speaking openly about supply a buyer with product from a site it hasn’t developed yet shows just how much its confidence has rebounded.

Just like the share price. Paladin stock jumped over 10 per cent yesterday, the largest bump the miner has received in seven months.

But the company isn’t suffering from delusions of grandeur. Before yesterday, Paladin has debts hovering around $800 million and $191 million does not fill that hole.

In a nod to the company’s ongoing challenges, managing director John Borshoff has accepted reduced pay for the second year running.

Back to the deal itself, the unnamed utility will hold 60.1 per cent of Paladin’s Michelin project in Canada as security and this will gradually be lowered as the deal progresses.

Paladin said that a few "formalities” need to be cleared up between the two parties and this is expected to be done by September.

Perhaps then Paladin will tell us who the mystery saviour is.

It’s difficult to hazard a guess because Paladin operates mines in west African nation of Namibia and the east African Malawi.

But if we keep things simple, the utility is likely to be from either India or China, given the amount of energy the two are set to consume in the 21st century.

Elders, Futuris, Ruralco

Debt-laden agribusiness Elders can’t avoid the perception that it’s divesting its automotive division, Futuris, to make itself a more attractive takeover play.

Managing director Malcolm Jackman denied that the move was a defensive one to The Australian, but was not as forthcoming about the other prospect.

"Unfortunately, when you do these things, suddenly one plus one becomes five," he told the newspaper, which is very true.

Elders tried to sell Futuris about a year ago but decided against it on the basis that having two separate revenue streams had its benefits. Now the desire to become a "pure play” has taken hold.

Futuris reportedly has a book value of $200 million, which is significant for a company’s that has a market cap of $114 million – which comes after a share price bump of more than four per cent.

Greenhill Caliburn has been retained to conduct the sales process.

Meanwhile, eyes have been fixed on Elders’ largest investor Ruralco, which has been building up its stake to more than 12 per cent recently.

While Ruralco chief executive John Maher wasn’t drawn on the news in the report, but did say that he is "watching closely”.

Rio Tinto, Gove Alumina, Oyu Tolgoi

Mining giant Rio Tinto has some work to do on two of its biggest ‘active’ deals.

Firstly, media reports indicate that Rio chief executive Tom Albanese told investors yesterday that the Gove Alumina refinery could be closed down as it runs the ruler over underperforming operations.

Gove has been pooled into Pacific Aluminium, the separate company that Rio is looking to spinoff in some way like a trade sale or IPO.

The problem for Rio is that Gove is supposed to feed Pacific Aluminium, slicing it off might ruin the whole cake.

Meanwhile, Mongolia and China are still at a bit of an impasse when it comes to the power supply agreement for Rio’s Oyu Tolgoi copper-gold project.

This is one of Rio’s signature projects for the next few decades and perfectly positioned to take advantage of China’s growing demand for resource imports.

But Rio itself needs to import Chinese electricity to Mongolia because the local infrastructure isn’t up to the job.

The Rio subsidiary handling the electricity arrangements, Turquoise Hill Resources, told the market that significant further delays could make it very difficult to Rio to meet the first production deadline in 2013.

Wrapping up

It’s a busy morning for Breakfast Deals when the Echo Entertainment-Crown battle is in the wrap up.

Echo chief executive Larry Mullins has confirmed that the company has held some initial discussions with James Packer’s gaming company, which holds 10 per cent and wants another 15, about a solution that will benefit all shareholders.

While Mullins wouldn’t be drawn much further, this could be a crucial step for Packer to get a hold of the licence Echo has to build a casino in Sydney and use it for his own ends.

Meanwhile, Qantas Airways doesn’t need any more motivation to keep the talks it says it’s conducting with a number of international airlines going, but it has some.

Middle eastern carrier Etihad and its Australian partner Virgin Australia are turning their alliance towards cost-cutting.

At the same time Etihad and China Southern are planning to increase the number of flights they have to Queensland, putting yet more pressure on the local higher costs carriers (well, there’s only one really).

So keep talking Alan Joyce, talk fast like the cast of The West Wing.

And finally, The Australian Financial Review believes that Billabong International will present to the management of suitor TPG Capital in the first week of September.

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