BREAKFAST DEALS: Arrium's nerves of steel

Steelmakers Australia looks to push for talks with Arrium but the target wants a higher price, while Echo's chair gets vocal on a second Sydney license.

Steelmakers Australia looks like it’s keen to get talking to Arrium and has written to chairman Peter Smedley to spruik its financing capacity. But the target is looking for a higher price and, so far, one isn’t forthcoming. Echo Entertainment chairman John O’Neill says his company has expanding plans for Sydney if James Packer goes his own way to Barangaroo. Meanwhile, Telstra has joined the NBN consolidation race, Whitehaven Coal has quickly relented to Nathan Tinkler’s aggression and Ingham Enterprises is reportedly hoping for a sale by Christmas.

Arrium, Steelmakers Australia

After a week or two of trading at a skinnier premium to the proposed 75 cents offer price from Steelmakers Australia, local steelmaker Arrium is back above 80 cents on clear signs that the consortium isn’t done with it.

Arrium shares finished the session at 80.5 cents, the first time they’ve closed above 80 cents since October 8, with joint bidder POSCO from South Korea telling its investors that it’s on the look out for cheap iron ore miners and Arrium remains an attractive target.

"Posco has been watching these assets in the perspective of raising its raw materials self-sufficiency ratio,” said the South Korean giant.

"Out of all the mines, we thought that Arrium has various advantages over others.”

The Australian Financial Review understands that POSCO and Hong Kong’s Noble Group, the main consortium participants at present, have written to Arrium chairman Peter Smedley in a bid to address some of the concerns the target has expressed for the $1 billion offer.

There’s also speculation that Noble’s advisers at Blackstone might be keen to jump into the consortium, which also includes National Pension Service of Korea, Korea Investment Corporation and Korea Finance Corporation. Arrium is taking advised from UBS and Allens Linklaters.

The newspaper understands Steelmakers Australia hasn’t increased the 75 cents offer, but the consortium has passed on a "highly confident” letter from its banks, implying that it’s good for the financing.

While Arrium did express concern that the initial offer had no evidence of bridge financing, the real issue is not the enthusiasm of the lenders. It’s about price.

POSCO has to play its hand very carefully because it desperately wants to reclaim a single A credit rating, which was recently cut to BBB by Standard & Poor’s.

Since Steelmakers Australia popped up with its bid, Arrium has offloaded its majority stake in Steel & Tube Holdings, a publicly listed company in New Zealand, for what’s expected to be $73.4 million. This will go towards paying down Arrium’s $2 billion debt, considered to be one of the company’s main weaknesses in a low iron ore price environment.

However, since the Steelmakers Australia bid emerged, iron ore prices have been consolidating recent gains and Arrium has upgraded its production guidance.

Economic data out of China has reinforced hopes that the slowdown might be bottoming out. Combine this with the pending conclusion of the leadership transition and the mood about China is improving markedly, which can only benefit iron ore prices.

Echo Entertainment, Crown

Echo Entertainment chairman John O’Neill has hit back after revelations that billionaire James Packer, a major shareholder in O’Neill’s casino company, is poised to secure a casino licence of his own in Sydney.

Packer has built a 10 per cent stake in Echo and is looking for regulatory approval to increase that to 25 per cent. It’s at various times been expected that Packer would try to come to some sort of agreement with Echo to play together in Sydney.

But now the NSW government appears ready to hand Packer a casino licence of his own after Echo’s licence, which is worth $100 million, expires in 2019.

Speaking to The Australian, O’Neill was particularly concerned about the potential for Packer to pick up a licence for his proposed $1 billion Barangaroo project without a public tender.

"If you regard a casino licence as a gift from the Parliament of NSW and therefore a valuable asset, you would want to make sure you get the best deal," he told the newspaper.

"The decision makers, being the Parliament of NSW, have to ensure that if they are going to go down that path – and there is still a lot of water to go under the bridge yet – they need to ensure they get not just a fair rate of return for the state, but the best rate of return."

O’Neill also had some fighting words about the company’s own plans for Sydney, whether it’s in conjunction with Packer or not.

"It is not for public airing at this stage but we haven't just been sitting on our hands, not looking at development opportunities ourselves in the jurisdictions in which we operate,” O’Neill told The Australian.

"Here in Sydney there may well be, in our mind, other locations other than Barangaroo for a high-roller space.”

O’Neill also had some fighting words to say about the company’s own plans for Sydney, whether it’s in conjunction with Packer or now.

Telstra, Adam Internet

Consolidation in the telecommunications industry, brought about by the National Broadband Network, has found its way to the top.

By picking up Adelaide-based Adam Internet for an undisclosed amount (rumoured to be up to $60 million) Telstra has waded into the market in a way that previously only the lower tier players were doing.

Adam Internet will keep its own name and become a stand-alone subsidiary of Telstra, which found the company had a strong brand with its 90,000 customers.

The deal is still subject to approval from the Australian Competition and Consumer Commission (ACCC), which is really something to look out for.

Rival provider iiNet, which became Australia’s third largest ISP with its Internode merger late last year, has fired back at Telstra by targeting customers in South Australia.

According to The Australian, Internode has begun offering three months free broadband service to South Australians who sign up to one of their plans for two years. Setup fees have also been waived.

Whitehaven Coal, Nathan Tinkler

Coal tycoon Nathan Tinkler appears set to get his wish tomorrow when Whitehaven Coal releases its quarterly production report, that will likely include the details he’s so desperate to see.

Whitehaven went into a trading halt yesterday after a report revealed he’d informed chairman Mark Vaile that if the details weren’t released to him, he’d use his 19.4 per cent stake to oppose the re-election of the chair, along with four other directors.

The Australian Financial Review understands that Whitehaven is currently looking for a new managing director with Tony Haggarty having told them a few months ago that he wants out.

This is not particularly surprising. It was widely reported when Tinkler was trying to get his $5.3 billion privatisation deal off the ground that, in the event that he succeeded, Haggarty would be looking to step away.

Ingham Enterprises

Bob Ingham hopes to have his chicken cooked by Christmas.

The Australian Financial Review reports that a handful of bidders have made it through to the second round of the biddings process being run by Investec.

The newspaper understands that there are a pair of private equity firms in there and at least one trade buyer.

It’s not known however if Affinity Equity Partners is still in the race. Affinity owns New Zealand’s Tegel Foods, which it purchased from Pacific Equity Partners in 2010.

The problem is that Tegel controls about 40 per cent of the New Zealand market and Ingham also operates in a big way across the Tasman.

Some expect the Ingham sale to generate about $1.4 billion for the Ingham, while it’s been reported that the family itself is hoping for something closer to $1.6 billion.

Wrapping up

Gas pipeline company APA Group still hasn’t secured Hastings Diversified Utilities Fund (HDF), they’ve got 78.65 per cent. It can get a little over 11 per cent more, they’ll be at compulsory acquisition territory.

APA has also increased its earnings forecast by around 22 per cent on the back of its $1.4 billion takeover tilt at HDF.

Meanwhile, Monadelphous Group has picked up a $320 million contract for maintenance work on Rio Tinto’s iron ore operations in the Pilbara.

The Australian Financial Review reports that Rio’s rival BHP Billiton is "stoking diplomatic tensions” between Australia and Canada with its planned sale of the Yeelirrie uranium deposit in Western Australia to Canadian major Cameco.

Cameco, you might remember, was beaten by Rio in the race for Hathor Exploration, the Canadian uranium explorer behind the Roughrider project.

The newspaper understands that the Australian uranium industry is using the deal as an opportunity to lobby the Canadians to change their foreign ownership limit of 49 per cent on uranium companies.

Elsewhere, Billabong International directors have copped a barrage of criticism from shareholders for rejecting takeover approaches at $3.30 a share, only to watch the share price fall well below $1 a few months later.

Billabong founder and director Gordon Merchant, along with fellow board member Colette Paul, survived an attempt to dump them from the surfwear company’s board by the Australian Shareholders Association.

And finally, The Australian reports that CHAMP Private Equity has finished its takeover of privately owned Gerard Lighting Group for $186 million.

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