Breakfast Deals: Australand stock-up?

Rumours surface over a Stockland-Australand merger, while Steadfast Group’s acquisition plans raise questions about a conflict of interest.

There’s no hold-up on property market speculation (is there ever in Australia?). Now Stockland is apparently sizing up Australand Property Group. Just where these whispers will lead, if anywhere, is impossible to tell. Meanwhile, Steadfast Group has some questions hanging over its post-float plans and the Australian Shareholders Association has thrown its hat into the Billabong International jostle and and where does Orica go from here?

Stockland Group, Australand Property Group

As the new week begins, speculation around the property sector is continuing with a pairing between Stockland Group and Australand Property Group the theory that’s currently doing the rounds.

The Australian believes that Stockland executives have being weighing the deal internally and “were serious about launching a bid, even though the $8 billion company had not appointed any investment bankers”.

A source told the newspaper that the most likely structure would be a combination of cash and scrip. Stockland conducted a $400 million institutional raising two months ago.

Other sources reportedly played down the idea, and there’s good reason as to why.

Australand’s share price has been rallying a bit over the past month, up 7.8 per cent. But that doesn’t reveal much anticipation for deal activity. The ASX 200 is up almost 5 per cent over the same period.

Australand’s majority shareholder, Singapore’s CapitaLand, has put its 59 per cent stake up for ‘review’ and the main question has been whether an offer with the right structure for the suitor and the departing parent could be struck.

If CapitaLand wants out of Australand, it would stand to reason that they wouldn’t want in on Stockland-Australand, unless the suitor offers very favourable terms – this play would annoy Stockland shareholders.

Meanwhile, Stockland was also the subject of speculation of a retirement asset strategic partnership with FKP Property to get costs down.

FKP was in damage control last week after a video purportedly revealing the company’s intention to set aside any demerger plans.

Chief executive Geoff Grady was quickly on the front foot denying that anything had been ruled out.

Steadfast Group

As Steadfast Group chief executive Robert Kelly heads to Asia this week to drum up interest for the company’s $335 million IPO, questions are being raised about the acquisition plans the insurance broker has.

The Australian Financial Review reports that fund managers are raising concerns about potential conflicts of interest in Steadfast’s plans to acquire an 87.5 per cent stake in back-office administrator White Outsourcing.

Steadfast board members Stephen Humphrys (also the company’s chief financial officer) and Cameron McCullagh own 8.4 per cent and 12.5 per cent stakes in White Outsourcing, respectively, according to the AFR.

It wouldn’t be a Frank O’Halloran-chaired company if M&A strategy wasn’t in the headlines.

Billabong International

The Australian Shareholders’ Association has rightfully voiced its objection to the $65 million break fee that New York’s Altamont Capital Partners has placed on Billabong International.

On Friday, the Takeovers Panel refused to issue interim orders demanded by rival refinancing suitors Oaktree Capital and Centerbridge Partners that would delay the drawdown of a bridging facility and the sale of brand DaKine.

Oaktree and Centerbridge, both of whom have snapped up Billabong debt in recent weeks, have also sought to have the break fee removed.

It’s a large break fee – huge, as a matter of fact. Break fees are usually employed to make sure one company’s time isn’t wasted. In this instance, it locks Billabong into Altamont in such a way it cannot escape.

ASA chairman Ian Curry isn’t happy, calling on the Panel to rule the fee unacceptable.

“Billabong shareholders have suffered enough at the hands of a board and management team who have imperilled the company,” Curry said.

“At the very least, the board should facilitate a truly competitive auction so that all serious bidders can lodge their best offers.”

That’s where Curry’s probably stretching himself a bit. Billabong has been in a state of due diligence for well over a year. Serious bidders simply cannot claim they haven’t been given a chance.

The ASA doesn’t have good form with Billabong. Back in October 2012 they incorrectly referred to company founder Gordon Merchant as Billabong’s “majority shareholder”. He has less than 17 per cent.

But they’re doing their job representing the interests of shareholders against what are unusual takeover arrangements to say the least, and you can’t knock ‘em for that.

While this mightn’t be comforting to Billabong shareholders, if the break fee is removed, it doesn’t therefore mean that Billabong will seek to consummate an apparently superior deal with Oaktree and Centerbridge – the superiority of this conditional proposal, not yet in the public domain, is highly disputed behind closed doors.

It just means Billabong wouldn’t be as compelled to continue dealing with Altamont. It still would, though.

Billabong has already, and rightly, ignored the after-the-bell charge from Oaktree and Centerbridge. Not because they’re reckless, but because Billabong desperately needs some stability and Oaktree and Centerbridge have opted for a strategy that doesn’t help in that regard.

Orica

Explosives and chemicals company Orica was smashed on Friday after revealing a 10 per cent downgrade in full-year underlying net profit.

Shares in the company dived 13.4 per cent as investors wondered why Orica had run into such difficulty and what the prospects are now for the balance sheet.

Fund managers are expressing dismay at the $1.6 billion spent on the purchases of Excel and Minova, the latter of which is causing some major headaches for Orica.

While the $6.7 billion company has made no indication that a capital raising is on the cards at all, investors are becoming increasing concerned that, with $2.5 billion in gross debt, Orica’s balance sheet is far from ideal.

And this with a weaker mining sector on the horizon.

It’ll be interesting to see what whispers institutional investors let slip into the business pages. When a company’s prospects start going southwards, the big investors are never hesitant to let their suggestions on how to remedy the situation be known.

American investor Harris Associates has been quietly building its stake in Orica over the last two months. Its shareholding in the company lifted to 9.43 per cent last week.

The lower share price will just make buying easier – that’s if they believe the long-term value proposition of Orica.

Wrapping up

Nine Entertainment boss David Gyngell has thrown an interesting spanner into the works amid the quiet jostling between the metropolitan and regional broadcasting for merger partners – Australia might only have enough room for two national free-to-air networks in the end.

The widely respected television chief executive makes the comments in this morning’s edition of The Australian Financial Review.

“With the performance of multi-channels, there is an argument that only two networks can be truly profitable at any one time,” Mr Gyngell told the AFR.

“As always, it comes down to who has the best ideas…If you don’t deliver shows that work, you’re going to be in real financial trouble.”

Speaking of media kingpins, major Fairfax Media shareholder Gina Rinehart is is thought to have won some support from Japan’s Marubeni towards her long coveted Roy Hill iron ore project in the Pilbara.

The Weekend Australian understands that Marubeni increased its stake in the Hancock Prospecting project to 15 per cent by snapping up an additional 2.5 per cent from financially strapped South Korean investor STX Corp.

And finally, anyone thinking about dealing with the cold by hitting the slopes will no longer be able to hurtle down Mt Hotham on a pair of Macquarie Bear Market Screamers.

The Australian investment bank has sold out of the world’s oldest ski brand, Rossignol Group, via its subsidiary Chartreuse et Mont Blanc SAS. It picked up about $US305 million ($332.4 million) for its efforts, according to The Wall Street Journal.