BREAKFAST DEALS: Bewitched Billabong

Billabong insists it's still being courted, while Sundance may be fed up with scandalised suitor Sichuan Hanlong.

Billabong International followed up its trading halt with an early evening statement that its two bidding consortiums are still in the data room. But what number do they have in their heads? Elsewhere, word is Sundance Resources is finally getting close to telling Hanlong Mining to bugger off as an American company joins in the controversy of Hanlong chairman's detainment in China. Meanwhile, Commonwealth Bank has won the right to take Aussie Home Loans and Australia’s IPO optimism is about the only thing to lean on for investment bankers, because M&A levels are even poorer than we imagined.

Billabong International, Paul Naude, Sycamore Partners, VF Corporation, Altamont Capital Partners

A wild day for Billabong International amid rumours that the two consortium bidders were pulling out has resulted in a few short-sellers being left with their pants down.

Billabong shares were placed in a trading halt at 1153 AEDT yesterday at 69.5 cents after volumes exploded and the stock plunged from the previous day’s close of 81 cents, down as low as 63 cents, before recovering a little to be 14.2 per cent in the red.

That’s a 37 per cent discount to the $1.10 indicative offers – which are admittedly looking very unlikely at those levels – that former Billabong Americas director Paul Naude lodged with New York private equity firm Sycamore Partners, and was later matched by US retail giant VF Corporation with Altamont Capital Partners.

The rumours were that the two bidders mightn’t just be thinking about downgrading their offers to about 80 cents a share, but pulling them altogether.

“Billabong confirms that the process for the change of control proposals previously announced is ongoing and that both of the consortia who have submitted indicative proposals remain in the process,” said Billabong.

That’s a truly awful example of the English language, but it means the two bidders are still in the data room.

If the 80 cents shares number is even vaguely accurate, the 69.5 cents closing price equates to a roughly 13.5 per cent discount. That means that investors were either scared of a very negative report from Credit Suisse, they believe the bidding consortiums will pull (and we know for a fact they haven’t yet), or that Billabong would reject an 80 cents offer.

That last idea is the least likely.

Sundance Resources, Sichuan Hanlong Mining

Sundance Resources is now one of a pair of companies in negotiations with China’s Sichuan Hanlong Mining that has been thrown into chaos over its chairman’s detainment by authorities.

US-listed General Moly, which owns two molybdenum mining projects in Nevada, suspended work on a $665 million loan deal with Hanlong after chairman Liu Han was reportedly detained, along with ex-wife.

Reports from state-owned Chinese media indicate that Liu is being detained in relation to money laundering offences, though he has not been officially charged yet.

Money laundering is common practice in the upper echelons of China – indeed, it’s found the world over – but there’s speculation that the reason why Liu is getting busted now is that his allies in the Chinese government have moved on as part of the recent leadership transition.

Whatever the case, there’s increasing talk that Sundance might at long last walk away from the Hanlong proposal because the argument that the deal can proceed is looking shakier and shakier.

Given that China can detain anyone on any offence for as long as they want without charge, this uncertainly could conceivably continue in perpetuity.

Commonwealth Bank of Australia, Aussie Home Loans

It turns out that the hints top consumer watchdog Rod Sims dropped about banking competition a month ago turned out to be indicative of what was to come for the decision on Aussie Home Loans.

Australia’s most valuable bank Commonwealth Bank of Australia – now worth a staggering $110 billion, at a probably overcooked price to earnings ratio of 15.37 – has been given then green light by the Australian Competition and Consumer Commission to increase its stake in Aussie from 33 per cent to 80 per cent, and perhaps later to 100 per cent.

“In reaching its view, the ACCC took into account the competitive constraint arising from the presence of a number of alternative suppliers of home loan products and mortgage distribution services,” chairman Sims said. 

"Aussie Home Loans brokers make up only around 6 per cent of Australia’s mortgage brokers, and there are many other distribution channels through which lenders can access brokers and borrowers.” 

If you think about it, Commonwealth Bank's 33 per cent stake in Aussie equates to just 2 per cent of the home loans market. Taking another 2-3 per cent, or a little more, isn’t a big deal.

However, when you think about the troubles that companies like Telstra or Woolworths have with just about anything that involves the ACCC, giving the bank the go-ahead also indicates that Sims isn’t too concerned about the mortgage market.

Which isn’t surprising – he told us back on February 21 that Macquarie Group’s deal with Yellow Brick Road to undercut the big four struck him as an important revelation about banking competition.

“We've got to make choices. There's four banks, that's more than we've got in a range of other sectors. We've only got three big energy retailers, two big supermarkets,” said Sims a month ago.

“The fact Yellow Brick Road could tie up with Macquarie to offer an alternative in the mortgage market, I think shows the barriers aren't so large.”

Now, Aussie Home Loans founder John Symonds, who created the lender to offer mortgage holders access to cheaper loans than the big four were willing to provide, will collect an expected $200 million from a deal with the most valuable in the industry.

It seems that Sims feels there will be other competitors to take Aussie’s place if it does become too entangled in the Commonwealth Bank universe.

Australia’s M&A Scoreboard

Another analysis of Australia’s M&A industry in the first quarter indicates that the booming equity markets and renewed optimism for domestic IPOs is not being matched with, well, actual deals.

According to data provided to The Australian from Thomson Reuters, announced activity in Australia for the first quarter is down 54 per cent to $US8.9 billion compared to the same time last year. It’s also down 67 per cent on the December quarter as companies drop dealmaking and opt for cost cutting.

While hopes remain high that Australia’s IPO industry will come out of its depressed stuper in the second half, the first quarter shows just how much better the second half of the year will need to be compared to the first half if 2013 is to look like a rebound year by the end.

Wrapping up

GE Capital has picked up the debtor finance book of Allianz Australia for $400 million to increase its footprint down under, according to The Australian.

Meanwhile, Nine Entertainment has reportedly received a “preliminary approach” from WIN Corporation, its regional affiliate, as the television networks try to figure out what they’re going to do with the 75 per cent reach rule now set on stone for a while longer thanks to the federal government’s latest episode.

The Australian Financial Review believes that WIN billionaire owner Bruce Gordon, a board member and shareholder in embattled Nine rival Ten Network, has approached Nine in the last month about a potential merger.

The newspaper says its sources believe the approach would not likely lead to formal negotiations.

Now that the media reforms have been removed from parliament, it’ll be interesting to see how these broadcasters can get along without the impetus of a regulatory change that allows long-coveted mergers.

And finally, retailer Oroton has announced it’s on the lookout for acquisitions to increase its portfolio of high-end fashion and accessories brands.

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