BREAKFAST DEALS: Billabong bog

One analyst sees TPG's bid undervaluing Billabong, while Qantas says nay to Japan Airlines.

Troubled surfwear company Billabong International might be worth a bit more than what TPG Capital is bidding at the moment. But it’ll require an active bidding process to realise something better. Meanwhile, Qantas Airways is not interested in the Japan Airlines issue, an issue that’s all too rare if the latest Computershare results are to be believed. Elsewhere, Sundance Resources keeps renegotiating, APA Group prepares to raise and News Corp loses a holy shareholder.

Billabong International, TPG Capital

Billabong International could be worth a lot more than the $694 million that TPG Capital has put up.

According to The Australian Financial Review, UBS believes Billabong could go for as much as $2.00 a share, or $950 million. TPG is currently talking about $1.45, with an indicative, non-binding proposal.

The newspaper also reports that the Billabong board sat down yesterday afternoon, with a TPG confidentiality agreement still to be bedded down.

You can see how the two of these could be related. With Billabong’s adviser Goldman Sachs trying to drum up some interested in the beleaguered company and Bain Capital reportedly interested in filling such a role, there’s an incentive for the surfers to drag their feet.

But not too hard. TPG knows what it’s like to walk away from Billabong, having been happy to discuss proposals of $3.30 when Billabong founder Gordon Merchant thought the company was worth no less than $4 a share.

The AFR also reports that some Billabong shareholders are not comfortable with new Billabong chief executive Laura Inman’s ongoing commitments with Commonwealth Bank of Australia, where she’s a director.

Inman reportedly isn’t available for management presentations until September. However, this remains unconfirmed and outside director roles are hardly unique to Inman.

Qantas Airways

Qantas Airways chief executive Alan Joyce says his company is not interested in taking a stake in Japan Airlines.

Speaking to the American Chamber of Commerce lunch in Sydney yesterday, Joyce said Qantas wouldn’t be drawn into the $8.5 billion IPO by JAL, a fellow Oneworld alliance member.

So Qantas won’t be splashing out for a stake in another airline. Of course, one of its primary concerns is not outgoing M&A stake deals, but incoming ones. Which means the Qantas Sales Act.

Last month, Qantas let the market know that it’s in talks with a number of carriers about possible alliances. Meanwhile Joyce is trying to execute his five-year turnaround strategy.

The whole point of this is to restore the company’s international business. The domestic arm is profitable and the frequent flyer program is a money printer. The international arm is where all the problems are.

The key for Qantas is to secure international partners that will compliment its own footprint, particularly so it can expand into Asia.

The problem with alliances is the terms of the deal have to ‘line up’ with the strengths and weaknesses of each participant; such formulas can be hard to find.

Hence, Qantas won’t be rushed.

In the meantime, Joyce needs to cut costs. So news that the carrier will save around $300 million from the restructuring that will see 2,800 jobs go is good news, except in the case of the workers themselves.


If you want to see some evidence that the global M&A market is in the toilet, check our Computershare’s latest set of results.

Breakfast Deals has relied too much on industry surveys and the like. It makes much more sense to look at the pulse of the world’s largest share registry company.

Computershare announced a 40.7 per cent drop in full year new profit thanks to a decline in takeover activity and poor share issues.

Profits fell to $156.5 million in what chief executive Stuart Crosby described as "a pretty tough year”.

"Corporate actions revenue, which is really the biggest transactional market activity-related revenue line we have, is tracking at levels not seen since 2004,” said Crosby.

So where to in 2012-13? Encouragingly, while revenue from corporate actions was down 13 per cent, the second half was better than the first half.

Further to that, the share price jumped 6.1 per cent to $8 even.

Sundance Resources, China Sichuan Hanlong Mining

Iron ore hopeful Sundance Resources has extended its trading suspension as it continues talks with suitor China Sichuan Hanlong Mining. Talks, mind you, that would be a little tense on some level.

Hanlong Group secured approval from China’s top economic planner, the National Development and Reform Commission, as long as it’s a "reasonable” price.

That is, understandably, probably to the profound disappointment of Sundance. The original proposal was at $1.7 billion, at 50 cents a share.

The chatter in the market is that Hanlong is now looking at 40 cents a share and that Sundance is very unimpressed and unlikely to accept.

Sundance has just been scrambling to secure the government approvals from the Cameroon and the Republic of Congo, which was a condition of the $1.7 billion deal.

APA Group

Gas pipeline company APA Group is reportedly set to raise around $400 million via a hybrid notes issue.

According to The Australian, Macquarie Group is acting as a sole arranger, with joint lead manager slots going to Morgan Stanley, Credit Suisse, RBS-CIMB and Evans & Partners.

This is the second such report from the newspaper. It also comes as APA wins due diligence for its bid for Hastings Diversified Utilities Fund (HDF).

APA won approval from the competition watchdog last month for a tilt at APA, but a rival proposal from a joint venture that includes HDF’s manager, complicates the matter significantly.

News Corp, FOX International Channels, Eredivisie Media & Marketing CV

Rupert Murdoch’s News Corp has picked up a majority stake in a Dutch cable television football broadcaster.

Some media reports indicate the deal for Eredivisie Media & Marketing CV is worth about one billion euros, ($1.17 billion). News is purchasing the network through its international media arm, FOX International Channels.

The news comes as the international media company loses a revered shareholder, the Church of England.

The Church has offloaded its entire stake in News Corp, 1.9 million pounds ($2.8 million), due to the media company’s handling of the News of the World phone-hacking scandal. The Church has taken a stand against the alleged illegal behaviour.

Arguments about the moral authority of the Church aside, the leader of the Church of England, also known as the Supreme Governor is the British Monarch, Queen Elizabeth II. This technically means that Liz has sold out Rupert.

Wrap up

The corporate regulator’s recommended reforms for the laws governing takeovers have received some support from Australia’s investment banks.

According to The Australian, UBS, Goldman Sachs and Citi have backed the proposal for changes to the sections governing the "creep” provisions.

The reforms have of course been inspired by the situations at Fairfax Media and Echo Entertainment, moves that come straight out of the playbook of Seven Group Holdings billionaire Kerry Stokes.

Speaking of which, the International Olympic Committee is delaying talks on the next Olympic broadcast deal until the National Rugby League has secured its next deal.

Foxtel and Nine Network paid what is said to be about $125 million for this year’s rights, but it’s expected that they’ll be up against Seven when the next round is up.

Let the NRL talks…continue.

Resources magnate Gina Rinehart has inked a $3 million deal with Galilee Basin explorer Cuesta Coal to form a joint venture covering two tenements. Rinehart’s Queensland Coal Investments could collect 51 per cent from the two sites.

Elsewhere, The Australian Financial Review reports that Bendigo and Adelaide Bank is tipped to win approval from its register for selling its 7.8 per cent stake in IOOF Holdings.

Apparently, Bank of America Merrill Lynch handled the share sale, totally $110 million.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles