BREAKFAST DEALS: Billabong lifebuoy

Paul Naude opens the window to Billabong founder Gordon Merchant, while Sundance shares are in deep water.

Billabong International founder Gordon Merchant has been offered a window by long-time friend and now company suitor Paul Naude to remain invested in the company. The company can expect a share price retreat this morning, but not of the magnitude of Sundance Resources, which was absolutely smashed yesterday. Elsewhere, Echo Entertainment has called James Packer’s hand in Sydney, while Envestra raises in Victoria.

Billabong International

Former Billabong International Americas director Paul Naude appears to have given long-time friend Gordon Merchant a window to remain a shareholder in the business he founded as part of a $287 million takeover.

Merchant and fellow director Colette Paull have thrown their support behind a 60 cents a share proposal from Naude and backed by Sycamore Partners. The deal allows shareholders to spin their holdings into the new company ownership structure, rather than taking the cash.

VF Corporation and Altamont Capital Partners also put forward a non-binding proposal after extensive due diligence, but it was well below the Naude deal.

Only a maximum of 24.9 per cent of the existing register can be transferred into the new vehicle. It’s almost certain that Merchant’s 15.7 per cent stake won’t have to compete for room. Most Billabong shareholders want out.

But before that can happen, Billabong will be examined by an independent auditor to satisfy the bidder’s lender. The Australian Financial Review understands that PricewaterhouseCoopers has been selected.

Billabong shares last traded at 73 cents a share. Despite being the subject of almost constant due diligence over the last 11 months, the proposal it has managed to get is still non-binding.

Hence, the stock is likely to trade at a discount to the headline 60 cents tagprice. The extent of the discount will reflect just how much the market believes that after all those eyes that have poured over the books, the auditors will still find something worrying about Billabong.

But the stock isn’t likely to be smashed like the company we’ve got up next this morning.

Sundance Resources, Sichuan Hanlong Mining, Moly Mines

Sundance Resources shareholders weren’t swayed at all by the encouraging words from chairman George Jones about how the company’s Mbalam iron ore project is worth more today than when it’s now departed Chinese suitor Sichuan Hanlong Mining first arrived with a $1.5 billion offer.

Sundance shares emerged from their cryogenic slumber in the crankiest of moods. They plunged 47.6 per cent, dragging the company’s value down to a once unthinkable $337.3 million.

While the African-focused iron ore miner can now entertain other takeover offers, along with different financing structures that will start the Republic of Congo and Cameroon project, attention is now shifting to the remaining 17 per cent that Hanlong has in Sundance.

Even before yesterday’s share price plunge, it was understood that Hanlong’s stake was $120 million under water.

ASX-listed Moly Mines has also been dragged into Hanlong’s woes, with the company going into a trading halt after reports that the company was thinking about rolling the Moly board.

With a 57 per cent stake in Moly, Hanlong is pretty capable of doing that.

Just to jump back to the prospect of an alternative proposal for Sundance, dealmaker Paul Glasson said told the Australia China Economic and Trade Forum that Chinese companies should consider more joint ventures with Australian companies, according to The Australian.

Echo Entertainment

Business Spectator’s Stephen Bartholomeusz explained the implications of Echo Entertainment’s rival Sydney casino proposal to billionaire James Packer's, so there’s no need to double up here.

But from a deals perspective, it’s thought that the New South Wales Liquor and Gaming Authority will rule on Packer’s application to increase Crown’s stake in Echo from 10 per cent to up to 25 per cent in the next few months.

The question will be greatly informed by the independent panel’s report on Packer’s plans for a six-star hotel at Barangaroo, to be released by the end of this month. Former Future Fund chairman David Murray is chairing the panel.

Until then, Packer has to sit tight. Echo is basically doing exactly what he did, lobbying the New South Wales government with an unsolicited proposal.


Victorian natural gas distributor Envestra has tapped shareholders for $100 million in anticipation of a big capex spend over the next five years.

Envestra told shareholders, of which Australia’s APA Group is the largest with 30 per cent, that last month’s tariff decision from the Australian Energy Regulator greenlights $440 million in capital spending for 2013-17. That number could go as high as $560 million, depending on the rollout, bringing the company’s total capex budget for that period to $1.3 billion.

Goldman Sachs is underwriting and managing the raising which, at 99 cents, is a small 7.9 per cent discount to the company’s last trading price.

Envestra can afford to offer that relatively skinny discount because the market is solid at the moment and investors like gas infrastructure players.

It should be said there is some talk about whether Envestra is running a balance sheet that’s too conservative.

In the meantime, APA is thought to be getting close to sealing a deal to offload the Moomba-Sydney pipeline, which was a condition imposed by the competition regulator to secure Hastings Diversified Utilities Fund, which was sealed in January.

Wrapping up

New Ten Network chief executive Hamish McLennan unveiled his first set of results and they weren’t pretty.

As part of the comeback, Ten has its eye on sports broadcasting deals with either Cricket Australia or perhaps even Tennis Australia.

McLennan agreed yesterday that it will be difficult to dislodge Nine Entertainment from its position in the next Cricket Australia contract, which will probably go for something like $350 million. Nine has last bidder’s right on the deal, which does still leave open the option for the pair to go in together.

Tennis Australia on the other hand is held by Seven Network and that contract doesn’t include last bidding rights.

And it’s Seven Network to serve. Play.

Meanwhile, BlueScope Steel is tapping into the US bond market to raise $US300 million ($289.5 million) for general corporate purposes and debt refinancing.

And finally, Queensland property tycoon Kevin Seymour has offloaded his 15 per cent stake in state builder Watpac for $20 million.

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

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