BREAKFAST DEALS: BHP bother

BHP Billiton's chances of a big diamond pay day look grim as De Beers loses interest, while Gina Rinehart marches closer to a Fairfax board seat.

Mining giant BHP Billiton has lost another big player from the sale of its diamond division, casting doubt over the value of the unwanted arm. Rival Rio Tinto will be taking note. Elsewhere, there’s speculation that a bid for Whitehaven Coal from Nathan Tinkler and associates could come surprisingly quickly, but the price tag being thrown around isn’t very impressive. Meanwhile, fellow billionaire Gina Rinehart looks set to win a board seat at Fairfax Media, the Flinders Mine soap opera enters a new phase and Spotless Group chairman Peter Smedley issues one final word on Pacific Equity Partners.

BHP Billiton

The world’s largest diamond company, De Beers, has walked away from BHP Billiton’s diamond business sale, denting its prospects for a big sale price.

The company, majority owned by Anglo American, said in a statement on Friday that it believes its suite of assets is world leading and it wouldn’t be putting a bid in for BHP’s EKATI mine.

BHP started the sales process last year. In December, it was announced that its majority stake in the Chidliak exploration project in northern Canada would be sold to partner Peregrine Diamonds for $C9 million ($8.5 million).

That still left EKATI, for which valuations have varied from lower than $500 million to above $1.5 billion.

Needless to say, the more bidders there are, the better the chance of securing a higher bid. But with De Beers joining Kohlberg Kravis Roberts on the list of parties no longer interested in EKATI, the number of analysts predicting a windfall for BHP has fallen.

According to Reuters, the other major parties still involved in the final stages of bidding are Harry Winston Diamond and Stornoway Diamond Corp.

While we’re supposedly at the ‘final stages’ of the process, Harry Winston chief executive Robert Gannitcott indicated last week that he expects the diamond sale process at BHP and rival Rio Tinto to take until the end of the year.

Speaking of Rio, state-owned Indian iron ore producer National Mineral Development Corporation has reportedly re-opened negotiations with the Anglo-Australian miner about a joint venture.

These talks date back to 2008, when the pair agreed to explore mutually beneficial opportunities inside and outside India, mainly in iron ore.

A memorandum of understanding lapsed after three years with no results. However, Hindu Business Line reports that talks are back on, though they’re in a preliminary stage.

Whitehaven Coal, Coalworks, Nathan Tinkler

When it comes to Whitehaven Coal, let’s take it one bid at a time.

Whitehaven has won the approval of the Coalworks board by effectively increasing its takeover offer by 2.5 cents per share to $1.025. The extra value comes from the distribution of Coalworks shares in the Indonesian coal mining aspirant Orpheus Energy. Whitehaven also removed bid conditions.

That’s not a big increase, which makes the confidence of previous rejections at $1 a share somewhat confusing. However, coal markets have come off significantly in the last few months.

Just before that announcement hit the ASX, Macquarie Capital pulled its motion to spill the board.

Macquarie objected to the share allocation to Hong Kong’s Noble Group along with an advisory role without a tending process. Perhaps Macquarie would have liked such a role.

Noble has a pair of spotlights on it, with the other one coming from speculation that it’s speaking to coal tycoon Nathan Tinkler about partnering in a bid to take Whitehaven private.

According to The Australian Financial Review, "word is” that an agreement could be forthcoming in the next two weeks at $5 to $5.50 a share. The newspaper also suggests that a deal of $5.50 is likely to win the support of Whitehaven managing director Tony Heggarty and his board.

This column has argued that Tinkler would find it hard to offer anything less than $6 a share because that’s the price the stock traded at before he sold Aston Resources into it and made himself, briefly, a billionaire on paper. Many analysts also have buying targets above the $6 mark.

But coal markets are struggling thanks to an oversupply burden and while no one is suggesting that it’s facing the kind of structural issues that the aluminium industry has been dealing with, the uncertainty in global markets generally could be enough to persuade some boards to take good deals while they can.

Fairfax Media, Gina Rinehart

Mining billionaire Gina Rinehart continued her unstoppable march towards 19.9 per cent of Fairfax Media and one, if not two board seats.

It’s unstoppable because Rinehart has enormous firepower and the stock price is offering no resistance as the prospect of a full takeover has been effectively ruled out.

Speaking on ABC Television’s Inside Business program yesterday, senior Fairfax business columnist Elizabeth Knight said it looks like at this point her company’s board has "lost its will for a fight”.

"As I understand it, certainly Gina will get one board seat,” said the columnist, adding that if Rinehart gets to 19.9 per cent there’s a good chance she’ll get two.

In all likelihood, that seat would go to Hungry Jacks founder and Ten Network director, Jack Cowin. Rinehart also sits on the Ten board.

Opposition leader Tony Abbott has strongly supported Rinehart’s growing stake in Fairfax – is anyone surprised by this? – arguing that it has to be a good thing for the mining billionaire to be investing in journalism.

The question is whether she’s trying to invest in journalism or buy journalists.

Flinders Mines, Magnitogorsk Iron & Steel Works

The Flinders Mine saga took another twist on Friday when the Takeovers Panel said it had received an application to have the "quit date” to the offer from Russia’s Magnitogorsk Iron & Steel Works extended.

The regulator said a minority shareholder called Geraldine Carter had claimed that the injunction against the takeover in Russian courts had created "unacceptable circumstances” in relation to the trading of Flinders shares.

Flinders shareholders embraced the $554 million takeover bid from MMK, but a mysterious minority shareholder called Elena Egorova filed a court action against MMK claiming that it would reduce the value of her holding.

Basically, the next court date is set for July 2, so a resolution is unlikely until then. However, the deal expires on June 30.

Given that the court injunction was announced not long after Flinders shareholders voted in favour of it, suspicions have been aired in some corners than this is an elaborate roost to get MMK out of a deal it no longer wants.

Carter is seeking to have the deadline for the MMK bid extended to July 14, giving more time for the court proceedings to take place.

The panel said it’s deliberating whether to give Carter’s request a hearing.

Spotless Group, Pacific Equity Partners

Spotless Group chairman Peter Smedley has taken one final swipe at private equity firm Pacific Equity Partners for the tactics it employed to ultimately win the services company.

In a letter to shareholders in the scheme of arrangement, Smedley said the turnaround strategy underway at Spotless was, in the board’s view, destined to provide great value to shareholders. However, PEP proved to be too crafty in the deployment of its ‘bear hug’ strategy.

"While the Spotless directors continue to believe in the future earnings potential of Spotless and the transformation program already initiated, the Spotless directors believe that scheme provides the most certain near term return for all Spotless shareholders,” Smedley said in the letter.

PEP’s $720 million bid was the second such offer from a private equity firm that this board faced.

A handful of institutional shareholders, tired of the turnaround story, were keen from the start to cash out. PEP signed preliminary agreements that covered 20 per cent of the register for its initial offer to pressure to Spotless board to engage.

After some tense toing-and-froing and some quite commendable developments for board transparency, Spotless finally conceded.

Wrapping up

Echo Entertaiment might have turned a challenge into an opportunity by opting for a capital raising after ousting its chairman in response to a James Packer push. But the billionaire’s quest to seize control of Echo, at least enough to meet his own ends, is still in healthy condition.

Echo released – finally – the details of its $454 million capital raising, which will come in at $3.30 a share, from a last trading price of $4.49. However, the company also said earnings are expected to come in at $270 million to $315 million for fiscal 2012.

That isn’t just an intimidatingly big window, as Business Spectator’s Stephen Bartholomeusz points out, but also an inconveniently timed drop from its previous $347 million guidance.

While we’re on raisings, Ten Network will have the market watching as it begins to tap retail investors for capital as part of its $200 million issue.

Meanwhile, takeover target Industrea has reportedly moved quickly to get its mining services division away as part of its $470 million deal with American giant General Electric.

According to The Australian Financial Review, indicative bids are understood to be due at the end of the month.

And finally, Fairfax reports that Fitness First has received over 100 inquiries for the sale of 24 of its 97 Australian clubs. Most of these wouldn’t be for the lot, as the company has indicated it’s willing to consider bids for only a portion of them.

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