BREAKFAST DEALS: Arabian white knights

A deal between Qantas and Emirates appears to be close and Hastings gets a better bid from APA.

Qantas is never far from deals headlines, which routinely shout speculation about the airline being the target of buyout bids, merger proposals and grand international alliances. This morning, the talk finally appears to have some substance. Meanwhile, Hastings Diversified International Fund receives a better bid from APA Group, while the Australian Stock Exchange settles for less in Singapore. Elsewhere, hopes of an IPO resurgence fade alongside Vibrynt's listing plans.

Emirates, Qantas Airways

Qantas' international travellers may soon find themselves passing through Dubai, rather than Singapore, as the Flying Kangaroo reportedly finesses the terms of a significant code share agreement with Emirates.

The Australian Financial Review says executives from Qantas and Emirates have flown between Dubai and Sydney several times over the past two months, and are now in late-stage talks about the framework for the proposed tie-up.

The deal would likely conclude Qantas' existing joint venture with British Airways on the so-called Kangaroo Route to London via Singapore. Instead, some passengers would fly via Dubai, where Emirates would transfer them to destinations across Europe, the Middle East and Africa.

The news comes just a week after Etihad won Australian government approval to increase its stake in Virgin Australia from just under 5 per cent to 10 per cent. Qantas lobbied against the deal, warning that Middle Eastern airline might use its deep, state-owned pockets to flood Australia's domestic capacity and steal Qantas' markets.

Qantas' own Middle Eastern ambitions appear to have merit. A deal with Emirates could reduce the local carrier's painful international costs, including capex, fuel and labour, while maintaining a global network (indeed, it would be the world's largest). It would also allow Qantas to shift its focus from unprofitable European routes and onto growth markets in Asia.

Of course, the precise value of the deal depends on its final form. The Australian Financial Review says it might be a simple code share agreement, covering connecting flights from Dubai and Qantas' domestic network. Otherwise, it could become an international revenue sharing deal, which would see the carriers teaming up to decide on scheduling, pricing and marketing.

Neither Qantas nor Emirates is commenting on the report.

APA Group, Hastings Diversified Utilities Fund, Pipeline Partners Australia

Investors in Hastings Diversified Utilities Fund may be in for a treat, with the prospect of an all-out bidding war for the natural gas pipeline company.

APA Group has lifted its bid for HDF to $1.33 billion in cash and scrip, worth about $2.50-a-share – significantly more than its original bid just above $2 per security. It is also technically superior to a rival $2.325-a-share approach from Pipeline Partners Australia, a joint venture of Utilities Trust of Australia and Canada’s Caisse de depot et placement du Quebec, although that bid maintains its all-cash allure.

Both suitors would allow HDF security holders to keep next month's 2.5 cent distribution on top of their respective offers.

APA's move comes after the Australian Competition and Consumer Commission granted the bidder approval to proceed with the buyout, as long as it agrees to sell HDF's Moomba-Adelaide pipeline were the deal to close. Analysts expect the asset to fetch about $400 million.

HDF's independent directors, which have already backed the PPA proposal, will now examine APA's revised bid. PPA has also reserved the right to lift its offer.

That point wasn't lost on HDF shareholders, who yesterday sent the stock price up 2.5 per cent to $2.54. That suggests both bidders might need to dig deeper still.

Australian Securities Exchange, Singapore Exchange

The Australian Securities Exchange has opened up its $50 trillion futures and options trading to Asian investors, as part of a deal with one-time suitor, Singapore Exchange.

Under the agreement, ASX and SGX will each co-locate their trading systems at the other's central hub, linking derivatives markets and quickening trades. SGX will set up its connection into the Australian market in September, while investors here will be linked into Singapore's derivative market – which also carries Chinese and Indonesian indices – at a later date.

The derivatives deal could boost the ASX's derivatives trading revenue, which The Australian Financial Review puts at about $140 million a year. It will also appeal to high-frequency traders, who value speed and proximity.

To be sure, it's a small alliance in comparison to the $8 billion merger the exchanges proposed last year. But its size may be part of the appeal, in that it bypasses Treasurer Wayne Swan, who ultimately killed the full-scale tie-up.

However, it must be a reminder to ASX management about what could have been – especially amid reports SGX is now in talks about a merger with the London Stock Exchange.


Deal watchers will be disappointed to hear US weight-loss company Vibrynt has abandoned plans for what would have been the biggest sharemarket listing this year.

The Californian company's adviser, JPMorgan, said the float – which would have been worth more than $200 million – would be postponed after receiving limited interest, according to The Australian. JPMorgan had been in talks with local and international investors all week.

Vibrynt, which makes a product aimed at helping the morbidly obese, is now understood to be seeking private funding.

Wrapping up

Malaysia's CIMB might have new competition for a half share in Brisbane broker RBS Morgans, as the seller Royal Bank of Scotland talks to more potential buyers.

The Australian Financial Review reports that Lazard, which is advising RBS on the sale, has handed out marketing material to two large, unnamed investment banks, as negotiations with CIMB drag on. Apparently, RBS is holding out for a price CIMB is unwilling to pay.

The new interest may be in response to news that RBS Morgans has been tapped to advise on the retail component of TRUenergy's expected $3 billion float, which is likely to be the biggest local listing since QR National.

Elsewhere, Billabong International investors will probably know more about the fate of the surfwear company by the weekend, as management considers a reduced $1.45-a-share offer from TPG.

Billabong chief Launa Inman has told The Australian she is taking the $695 million bid – $150 million less than the private equity offered in February – "very seriously". "There's a lot of discussions going on and no decision has been made – we haven't set a time but I imagine it will be before the weekend... whether to allow them due diligence," she said.

In the meantime, TPG has confirmed that it now owns 14.5 per cent of Billabong's stock, after striking deals with two of its largest shareholders, Colonial First State and Perennial Value.

And finally, Alesco has made good on threats it would take DuluxGroup's $210 million hostile buyout offer to the Takeovers Panel, as the suitor steps up the attack on its target's management.

Dulux has hit out at Alesco for providing a "vague" guidance for 2013, and calculates that its latest $13.6 million full-year loss contributes to a total loss of $137.4 million over the past four years.

The comments came after Alesco rebuffed a second, sweetened offer from Dulux. The paintmaker lifted the cash component of its bid from $2-a-share to $2.05, and said Alesco would pay 42 cents a share in fully franked dividends, including 18 cents in franking credits. Dulux says that represents a total value of $2.23 per security, subject to tax.

Alesco says those claims are "misleading and deceptive”.

The Takeovers Panel will now consider Alesco's request for a declaration of unacceptable circumstances from Dulux. It has also requested an interim order restraining Dulux from lodging or publishing a supplementary bidder’s statement and an interim order forcing Dulux to provide a corrective announcement.

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