BREAKFAST DEALS: BHP goes organic

Big acquisitions are out in the short term for BHP Billiton with the miner sticking to its organic growth plan. With $80 billion earmarked for capital spend and a hefty share buyback the cashed up miner looks to be playing its cards right but investors are a little miffed about the lack of details on just how and where the money will be spent. Meanwhile, ratings agency Moody's Investor's Service delivers a nasty surprise to the big four banks and the race between Qantas and Virgin for the 'Best for Business' crown heats up. Elsewhere, Wesfarmers confirms its interest in Burrup Fertilisers, Rio Tinto raises its stake in Riversdale Mining and media mogul Rupert Murdoch buys more News Corporation shares.

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BHP Billiton

BHP Billiton has wowed the market with its bumper first half profit and the expanded $US10 billion buyback, along with a modest 10 per cent rise in interim dividend, should be enough to keep most shareholders happy. The mining giant posted underlying earnings of $US10.7 billion on the back of roaring iron ore and coal but the aluminium division was one sore point, contributing very little to the earnings bonanza. Underlying earnings for the division fell 89 per cent to $19 million and BHP boss Marius Kloppers was candid about the unit, saying that it was lagging behind its illustrious peers. While there's no immediate talk of walking away just yet aluminium presumably doesn't figure prominently in BHP's future capex plans. Those capex plans feature a whopping $US80 billion earmarked for growth projects over the next five years and unsurprisingly the numbers have subdued immediate expectations of an acquisition in the short-term. That's not to say that BHP doesn't have the deep pockets for a buy but Kloppers' comments that top class assets he's after were a bit too pricey at the moment is an indication that the miner is focused on organic growth. However, if there is one thing missing from the picture its clear guidance on just how and where the money is going to be spent. BHP hasn't provided the details on the capital costs of the projects and we still don't know which projects will get the greenlight to go into construction. Let's just keep in mind that BHP so far has only $US11 billion of approved projects under development and it's safe to assume that coal and iron ore will soak up the lion's share of the capital spend. BHP also has its potash interest in Canada as well as copper operations in Chile and Kloppers has flagged that more money will be poured into them. However, spending $80 million in five years is no mean feat and the market would still like to see more information on how the miner intends to spend the allocated $16 billion a year.

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BHP Billiton, MRRT

The miner's mammoth results were invariably going to generate some political comments and federal treasurer Wayne Swan and the Greens didn't disappoint. Swan told the media that BHP's results justified the government's push for a minerals resources rent tax (MRRT) while the Greens took the opportunity to rage against the big bad miners. With Treasury figures showing that the revised tax, pushed through by PM Julia Gillard, will collect $60 billion less in revenue , BHP's record profit provided extra ammunition to the Greens. Greens leader Bob Brown has warned that the party could use their control of the Senate to press the government to raise more revenue from the miners. Gillard for the time being is sticking to her guns and has flatly refused any changes to the MRRT.

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CBA, ANZ, NAB, Westpac

While National Australia Bank (NAB) has been grabbing the headlines with its ambitious moves to shake up things in the home loans market, ratings agency Moody's Investor's Service has delivered a sobering assessment of the big four banks. Moody's has placed NAB, ANZ Banking Corporation, Commonwealth Bank of Australia and Westpac Banking Corporation on review for a possible downgrade and reaffirmed a negative outlook for the firms. The review is going to take a closer look at the Australian banking system and what it sees as an overreliance on the wholesale funding market. The big four have been steadily moving away from the wholesale debt to diversify their funding base but it would seem that Moody's is either unhappy the with the pace of progress or not convinced. The big four have all responded to the review, with ANZ  saying that it understood the rationale behind the review, CBA promising that the review won't have material impact on its funding plans, Westpac maintaining that it is diversifying its funding sources and NAB saying that it was committed to delivering its strategic agenda while supporting the needs of customers. Moody's has also placed New Zealand's four major banks – which are all Australian owned – on review for possible downgrade. The review affects the Aa2 long-term senior unsecured debt and deposit ratings of ANZ National Bank Ltd, ASB Bank Limited, Bank of New Zealand, and Westpac New Zealand Ltd. Speaking of NAB and its moves, The Australian reports that the bank has been forced to confirm that its original offer to pay the $700 exit fee for defecting CBA and Westpac customers would be offered through its Homeside division, which provides about one-third of NAB's total mortgage book. It was originally understood the payment would only be made to new customers who dealt directly with NAB and not through mortgage brokers. However, the paper reports that an angry response from mortgage brokers has forced the bank to tell them that it will waive the $600 establishment fee for all new loans refinanced from any bank, not just CBA and Westpac, written through Homeside. The deal will be on offer until the end of April.

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Qantas, Virgin Blue

The war for the corporate travel dollar in the aviation sector looks set to heat up, with Qantas bringing out the big guns against rival Virgin Blue. Qantas is targeting the lucrative route between the east coast and Perth by increasing its capacity and announcing the use of wide-body aircraft on the route, including a Boeing 747. The 747 will start operations on the Sydney-Perth route six days a week from May and as Qantas boss Alan Joyce points there is the extra lure of fully-flat "Skybeds”. Qantas will increase capacity on the route by more than 15 per cent – or 4,300 seats – a week in the coming months and add more than 2,100 additional seats to the Melbourne-Perth route. Joyce also pointed out that when it comes to service, Virgin Blue still has some catching up to do. However, Virgin's boss and former Qantas man John Borghetti certainly looks up to the challenge. Virgin is preparing to double its share of the corporate market in the next two years and the airline is currently fitting out two Airbus A330 aircrafts – leased from Emirates Airlines – which should start flying before the end of the financial year. For now, Qantas has taken an early lead in the race to see which airline gets their hands on the 'Best for Business' crown. However, Borghetti probably won't mind the aggressive response from Joyce if it hurts Qantas' overall profitability on the route. The "Flying Kangaroo” is today expected to unveil a 61 per cent rise in underlying profit before tax to about $430 million for the six months to December 31. .

Clifford Chance, Chang, Pistilli & Simmons, Cochrane Lishman Carson Luscombe, Allen & Overy

There's a new player in the Australian legal landscape with UK giant Clifford Chance entering the game with two substantial mergers. The law firm has announced mergers with Australia's two leading boutique law firms, Chang, Pistilli & Simmons (CP&S) in Sydney and Cochrane Lishman Carson Luscombe (CLCL) in Perth. Clifford Chance said in a statement that the new Australian operation will fully integrate CP&S and CLCL's partners and lawyers into its fold and create an immediate 14-partner capacity in Sydney and Perth. The deal is part of an overall expansion of Clifford Chance's Asian operations, aimed at doubling the revenue of the regional practice within four years and follows the recent entry of Allen & Overy..

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Wesfarmers, Burrup Fertilisers

Wesfarmers has formally revealed its intentions as a suitor for the assets of Australia's biggest ammonia producer, Burrup Fertiliser, after the diversified conglomerate went to the Australian Competition and Consumer Commission (ACCC) to examine any potential issues with any acquisition. The ACCC has said it is reviewing a possible acquisition of assets owned Burrup, which went into receivership last year. The watchdog is seeking comments from interested parties about the possible acquisition of all or part of Burrup by Wesfarmers. Wesfarmers already produces up to 520,000 tonnes a year of ammonium nitrate and 260,000 tonnes a year of ammonia and has a 50 per cent interest in Queensland Nitrates.  So Wesfarmers' has put up its hand for the 65 per cent stake – potentially worth up to $800 million – in Burrup Fertilisers and it will be interesting to see if the move elicits a response from other potential bidders, including Orica and Incitec Pivot.  

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Wrapping up

News Corporation supremo Rupert Murdoch has again boosted his holding in the media conglomerate, buying $US48.2 million worth of shares. According to reports, the share purchase brings his personal count to about 4 million Class A shares, which carry no voting rights. He also controls 8.8 million Class A shares in a trust, that benefits the two young children he has with wife Wendy, and 317.3 million voting Class B shares, through a separate family trust.  News Corp said in a statement that the new shares were for Murdoch and not for either of the trusts. Meanwhile, The Australian Financial Review reports that Coles has bought out National Australia Bank's stake in Australia's oldest and largest loyalty program, FlyBuys. The FlyBuys scheme was established by Coles, NAB and Shell in 1994 and has 10 million cardholders. In the mining sector, Rio Tinto has raised its relevant interest in takeover target Riversdale Mining to 15.97 per cent from 14.97 per cent. Meanwhile, iron ore junior FerrAus Limited (FerrAus) has told shareholders that its $35 million placement will now be settles on February 10, with allotment scheduled for February 21. FerrAus delayed the settlement a few weeks ago after suitor Wah Nam International Holdings moved to seek ASIC relief to extend its takeover offer to include the new placement of shares. Elsewhere, Melbourne-based base metals explorer Fortis Mining is in the news again with the company set to acquire a potash asset in Central Asia. Fortis shares went into a trading halt yesterday ahead of the announcement. The recently listed minnow announced a partnership with Hong Kong-based investment company Grand Concord Investments earlier this month the placement of six million shares at 40 cents a piece. It has also signed an agreement with UK-based $3.4 billion alternative investment group, Global Emerging Markets (GEM), for a $10 million equity facility. Gujarat NRE Coking Coal has announced a $72 million institutional placement to raise funds for the development of its two hard coking coal mines in New South Wales. The Placement for 100 million ordinary shares will be fully underwritten by UBS and represents about 11 per cent of the miner's issued capital.  In other news, building services company Hastie Group has hired Macquarie Bank to help it analyse its financial performance and its implications on its capital structure. Hastie has gone into a trading halt as it continues discussions with its lender. In international news, takeover target Airgas's "poison pill” defense has done the trick with suitor Air Products & Chemicals finally ending its year-long $US5.9 billion pursuit. Airgas had contended that Air Products' $US70 a share offer was too low and did not reflect its true value.