BREAKFAST DEALS: Aston puzzle

The Whitehaven-Aston coal merger poses a number of questions, while Origin improves the economics of the APLNG project.

Something could come up, but the forces behind Whitehaven Coal and Aston Resources – and Boardwalk Resources, let’s not forget – are already indicating that it would take something significant to jeopardise their $5.1 billion merger of equals. This leaves one question for the present and two for the future. Meanwhile, Origin Energy has improved the economics of its Australia Pacific LNG project, by ceding – along with partner ConocoPhillips – some equity to Sinopec in exchange for a committed customer. Elsewhere, Wah Nam tries to clean up the rest of Brockman Resources, Qantas is still talking about its Asian hub plans and Pacific Equity Partners looks to have watched one of its bids fall flat – but it’s not for Spotless Group.

Whitehaven Coal, Aston Resources, Nathan Tinkler

The ‘merger of equals’ between Whitehaven Coal and Aston Resources is very likely to go through given the signals already apparent from the major holders of both companies, but three questions remain at the forefront of this $5.1 billion deal. Firstly, is Aston selling its shareholders short? Secondly, is Nathan Tinkler destined to exit the merged company in order to settle some debts? And thirdly, will this new company be a takeover target?

On the first question, some of the arguments have merit. It’s felt that the inclusion of Tinkler’s privately held company Boardwalk Resources is diluting the slice that Aston shareholders will ultimately receive – then again, that’s how it works when you don’t have a seat at the table. This deal values Aston at around $10.85 a share. While that’s 11 per cent higher than the last closing price before the deal was announced, two months ago Aston offloaded a 10 per cent stake in the Maules Creek project for $370 million, which implied a value closer to $15. Then again, things get complicated when a deal is project specific and another stake sale would have valued the company not far above the current deal.

On the second matter, both companies are doing their best to play down the idea of Tinkler selling down his stake – even though it’s widely expected in order to settle some debt – because it’s not a good look to be spruiking a deal while the largest shareholder is eyeing the exit. It’s impossible to tell, but there is an enticing incentive on the horizon for Tinkler, which leads to the third question.

The very real prospect of takeover speculation from China or India and the quality of the assets will encourage Tinkler to keep a significant interest in the new entity. Whether he can afford to keep that entire 19 per cent remains to be seen, but the new company will undoubtedly receive some attention.

Origin Energy, ConocoPhillips, Sinopec

Origin Energy and ConocoPhillips will be feeling a little better about their Australia Pacific LNG project after joint venture partner China Petroleum Corporation (Sinopec), agreed to increase its stake from 10 per cent to 25 per cent. Origin Energy and Sinopec will now hold 37.5 per cent each, while Sinopec has committed to taking another 3.3 million tonnes of LNG until 2035, on top of the 4.3 million tonnes it has already promised to take. As Stephen Bartholomeusz points out, Origin boss Grant King is gradually trying to improve the economics of the enormous $US20 billion project by securing customers in exchange for a little equity.

Brockman Resources, Wah Nam International

The controversial Wah Nam International has lobbed a bid for the rest of iron ore hopeful Brockman Resources that it doesn’t already own, valuing the target at $438.7 million. The cash and scrip offer has an implied value of $3.03 a share, through $1.50 cash and 18 Wah Nam shares. Brockman shares last changed hands at $2.26, which would imply a big premium (about 34 per cent, half of which is scrip), but Brockman shares were trading at $6 just nine months ago. The Hong Kong investment group, which already owns 55 per cent of the target from a previous bid in November last year, is headquartered in Hong Kong and its chairman Luk Kin Peter Joseph is under investigation by the Independent Commission Against Corruption. With cash on hand, the target’s board has unanimously recommended the offer.

Qantas Airways

Qantas Airways boss Alan Joyce didn’t give investors much in the way of details about the company’s plans to build an Asian hub at yesterday’s investor briefing, merely saying that "talks continue”. Qantas is looking to set up a premium Asian carrier with a joint venture partner, probably Singapore Airlines or Malaysia Airlines from a base of either Singapore or Kuala Lumpur.

Joyce again defended his position to ground the airline’s global fleet to bring its industrial relations dispute to a head. But it appears that head won’t be rushed, with Fairfax reporting that, thanks to a delay to the hearing of its case, Qantas will have to wait at least six months before the industrial dispute is resolved. However, there is some good news in the interim. Qantas has been formerly reviewing its 46 per cent stake in Asia Pacific, Fiji’s flagship carrier, due to unconvincing profits. Discussions haven’t exactly sped along and now Asia Pacific has just booked a $F24.7 million ($A13.6 million) profit, as opposed to a $F65.3 million loss, after savings from cancelled aircraft orders. The company is still running at a thin operating loss, but massive improvements have been made.

Pacific Equity Partners, VIP Petfoods, Spotless Group

Private equity player Pacific Equity Partners has reportedly lost out in the race for Australian company VIP Petfoods. According to The Australian Financial Review, CHAMP Private Equity has beaten PEP to the punch with a final price expected to come in above $400 million. Meanwhile, there’s still no news from the management presentation that PEP is set to view courtesy of another of its targets, Spotless Group. The integrated services company managed to settle an increasingly frustrated register after declining to engage with PEP over an indicative $698 million proposal. Chairman Peter Smedley calmed things down by offering a management presentation to PEP, which would then be released to shareholders. But while PEP would have been hoping for something straight up there’s been no word about when Spotless will fire up the PowerPoint.

Indophil Resources

Melbourne’s Indophil Resources has pleased investors greatly by announcing a $97.7 million placement to key Philippine shareholder, Alsons Power Holdings, and that it is considering listing its shares on the Philippine Stock Exchange in 2012. Indophil holds 37.5 per cent of South-East Asia’s largest untapped copper-gold deposit, Tampakan. Swiss giant Xstrata owns the other 62.5 per cent. Through this deal, Alsons will get 19.9 per cent of Indophil in exchange for greater footing in the pursuit to develop the $US5.9 billion project. With a market cap of just $443 million, a bit of help goes a long way for Indophil.

Elsewhere in resources, uranium hopeful Bannerman Resources is reportedly set to reveal a 22.5c per share capital raising today, putting a big bullet in the 61c per share takeover offer from Sichuan Hanlong Group. According to The Australian Financial Review, GMP Securities is set to seek to raise up to $20 million for Bannerman as serious doubts continue to linger over Hanlong’s ability to get finance approval for its bid. Meanwhile, capital raisings are also set for Independence Group and Kagara Mining.

Wrapping up

NewSat’s quest to become a satellite owner has been given a boost after the company signed a 10-year, $US67.2 million, pre-launch contract with an unnamed "leading Middle Eastern telecommunications provider”. It brings NewSat’s total pre-launch contracts for its Jabiru satellite program to $US346 million.

Freight and logistics company Qube, led by former Patrick boss Chris Corrigan, has just busted into the ASX200 and to celebrate it has announced an $85 million placement. Fifty million was to key shareholders Carlyle Infrastructure Partners, which should increase its stake in Qube to around 15 per cent.

Meanwhile, The Australian Financial Review reports a last-minute disappointment for Telstra Super, after its $180 million offer for a stake in Flinders Ports was snatched away from it by State Super NSW. The newspaper says both State Super NSW and existing MTAA shareholders are advised by Access Capital Partners, and State Super NSW exercised pre-emptive rights on MTAA’s behalf to muscle Telstra Super out of the picture. And finally, the same newspaper says Victoria Funds Management Corporation has handed management of its $1.5 billion private equity portfolio over to QIC.