BREAKFAST DEALS: Behind Chinese walls

Lunch isn't just for wimps. Be sure to check out LUNCH DEALS for more wheels and deals later today.
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Are the Rio arrests an outcome of a deal gone awry, or is something else going on? Who is looking at Santos and where else is China looking for oil and gas resources? New rumoured IPOs, delayed capital raisings, merger possibilities and lots more in today's Breakfast Deals.

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Rio Tinto

The truly bizarre and disconcerting story that four Rio Tinto employees have been arrested in Shanghai seems to be more a story about iron ore price negotiations than a reaction to Rio's decision to scrap a deal with Chinalco, as has been discussed on blogs and elsewhere. According to the Sydney Morning Herald, which seems to be leading the story, the four members of Rio's iron ore sales team, which includes one Australian citizen, Stern Hu, were arrested by the Public Security Bureau in Shanghai. The SMH believes they had been meeting in Singapore and Hong Kong out of fears that their phones and e-mails were being tapped. Apparently information was leaking back to the China Iron & Steel Association and presumably the arrests were made in connection with something that someone said. As for Chinalco, for all the Chinese media's accusations of Rio's "perfidy” and dishonour, the state-owned company is still a 9 per cent shareholder in the Anglo-Australian mining group and has indicated that it just wants to move on with life. Then again, in China, whether its provincial commodities-linked unrest or investments in melamine-tainted milk producers, nothing is certain.

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Santos

A range of parties including Petronas, China National Offshore Oil Corporation (CNOOC), Shell, BP, AGL Energy and Apache Corporation could make hostile bids for Santos once restrictions are lifted on September 1, Dow Jones reports. The newswire service quoted analyst Di Brookman of Citigroup saying that although a 15 per cent shareholder cap was lifted by the South Australian government in November last year, companies that have since entered the Santos dataroom undertook that they would not make a hostile bid until the third quarter. Such parties include Malaysia's Petronas, which is Santos's LNG partner. Santos, which has a market cap of $10.84 billion, fell 2.43 per cent in the course of yesterday's trade.

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Argentine oil

Talk of a bid for Santos may still be rather speculative, but China National Petroleum Corporation, CNOOC's bigger state-owned rival, is believed to be preparing a $US14.5 billion bid for 75 per cent of Repsol YPF's Argentine unit. According to unnamed sources in Reuters, this is CNPC's third attempt to gain control of the Latin American group. It was reported here on Mondaythat CNPC could pay up to $US17 billion. It is also rumoured that CNOOC, India's ONGC and Russian oil companies are eyeing Repsol YPF. South America is increasingly being seen as an important source of future oil production, with major discoveries made recently off the coast of Brazil and in the Falkland Islands. Despite the 1982 war between Argentina and the British colony, the Falkland Islands government said last month that it would welcome interaction with Argentine companies. Presumably China's involvement won't change that.

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General Motors

Beijing Automotive's (BAIC) bid for General Motors' European arm Opel involves less job cuts and less European government aid than a rival offer from Austro-Canadian Magna International, but has nevertheless been opposed by major stakeholders. The catch of BAIC's offer is to idle operations at Opel's factory in Eisenach, Germany for two years, though staff would remain on the payroll. "Just as good musicians need the practice, so do our staff," a local labour officer expressively told Reuters. The local government in the state of Thuringia also opposes the proposal, saying it was "completely out of the question." Objections by Germany's politicians and labour movement canned an earlier proposal from Italian carmaker Fiat, which has otherwise taken a 20 per cent stake in fellow US auto giant Chrysler, pending a majority takeover once government loans are repaid. Russia is also very much opposed to BAIC's offer, with carmaker GAZ partnering with Magna on its bid, and Russia's Sberbank arranging the finances. Even Vladimir Putin is getting involved, meeting overnight with the president of Germany's IG Metall labour union. BAIC is said to be offering GM €660 million for a 51 per cent stake in Opel and is seeking extra finance by way of €2.64 billion in German government loans.

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Hanson Australia

A partial float of Heidelberg Cement-controlled Hanson Australia could be on the cards, the Financial Review says. The future of the company has been uncertain for most of its life under the Heidelberg banner, when it, as part of the London-listed Hanson plc, was purchased at the top of the market in August 2007. Since then, the patriarch of Heidelberg's major shareholder, Adolf Merckle, has committed suicide, a number of assets including 14.1 per cent of Indonesia's PT Indocement Tunggal Prakarsa has been sold and Hanson in the UK is reportedly on the block. In New Zealand, Hanson's 50 per cent stake in Pioneer Road Services is being sold to Fulton Hogan and globally, cement companies are selling down in the wake of new credit constraints, a sharemarket wipeout and depressed construction markets in the US, Europe and Britain. The most recent example of this was of course the sale of Cemex Australia and 25 per cent of Cement Australia to Switzerland's Holcim for $2.02 billion. The vendor, Cemex of Mexico, sold the assets for a 6.6 times EBITDA multiple. Deutsche Bank is said to be advising Heidelberg on Hanson Australia, while Commerzbank is thought to be advising on the sale of Hanson UK.

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Kathmandu Group

Another float rumoured in today's AFR is that of private equity-owned Kathmandu Group, the kiwi outdoor clothing company that uniforms individualistic backpackers across the world in matching shades of khaki, asparagus and myrtle. It's been a good business since purchased by Goldman Sachs JBWere's Hauraki Equity II fund and Quadrant Private Equity in 2006 for $400 million. A speculated $500-600 million float could give tidy return, though it is possible that GSJBW and other underwriters, of whom UBS and Deutsche Bank are candidates, will wait until department store group Myer tests out the IPO market first. Then again, considering that Kathmandu has an ethos of going places where no-one has gone before, perhaps a listing could come sooner than that.

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Wrapping up

Crane hire group Boom Logistics has been approached by the Harbrew Group over a possible merger and has put its $80 million capital raising on hold. Harbrew already owns 12.2 per cent of Boom via associated entities. Transpacific Industries has also delayed its $800 million capital raising, saying it needs another fortnight to satisfy remaining conditions. Over in toll-roads, rumours that ConnectEast may be ripe for a takeover offer have resurfaced in the Fin Review on lower traffic numbers sent the company's share price down. Over at Amcor however, talk that it is preparing a major capital raising ahead of an acquisition of various Rio Tinto Alcan packaging divisions is increasing. Funds could be raised via a combination of non-core asset sales, plus new debt and equity capital offers. The big wild card however is whether an Alcan acquisition would pass competition regulators. Closing or selling existing operations could thus be an important part of not just getting the money together, but in getting the deal approved. And finally, Gujarat NRE Minerals says it is satisfied with undertakings made to the Takeovers Panel that a capital raising by takeover target Rey Resources would not be used to unacceptably stymie Gujarat's offer. Stockbroker BBY gave an undertaking that its underwriting of Rey's rights issue would not influence its role as Rey's takeover defence advisor. If BBY acquires a potential 12 per cent in Rey's share capital under the underwriting agreement, it will do what it can reduce its voting power to less than 5 per cent.