BREAKFAST DEALS: Billabong pause

The market remains sceptical on a Billabong bidding war, while Leighton has a suitor for its telco assets.

Billabong’s new suitor has serious street cred and likes the troubled company’s central brand, but the market remains sceptical about a bidding war. Leighton Holdings reportedly has a former Telstra partner on the line for its telco assets. Meanwhile, Fortescue is back out of shale gas for the moment, Harry Winston Diamonds is looking logical as the Rio Tinto diamond business buyer and Whitehaven Coal is keeping cool on Shenhua rumours as the email hoax aftermath continues.

Billabong International, VF Corporation, Altamont Bidding Partners

The structure of the new $527 million proposal for Billabong International helps the argument that the iconic brand is salvageable. But doubts remain for all to see about whether either of the two proposals will catch the retailer’s choppy wave.

Retailer VF Corporation has said in a statement that it intends to take the Billabong brand of the embattled retailer, while it’s San Francisco-based co-bidder Altamont Bidding Partners would take the rest.

The American retail giant made it plain that the proposal is "very preliminary in nature”. However, interest in the Billabong brand specifically from a company behind such global brands as Timberland, The North Face and Vans is a welcome development when questions have been raised about the longevity of a brand that’s been looking dated.

Under the $1.10 a share indicative bid, Altamont would take the rest of Billabong’s brand house, which includes Kustom and Element amongst others.

According to media reports, Altamont has called in former Oakley and Nike executive D Scott Olivet for its takeover campaign and he would end up running brands like Element, as well as Tigerlily and RVCA, if the proposal gets up.

While the proposal is equal to the deal put forward by Billabong director Paul Naude and New York’s Sycamore Partners, the share price reaction yesterday just goes to show that employment of the phrases ‘bidding war’ or ‘competitive tensions’ is very premature.

The struggling retailer’s share price finished yesterday’s session up 16 per cent at 98 cents each. That’s welcome news no doubt, but it’s still 11 per cent beneath the $1.10 a share that the VF-Altamont and Naude-Sycamore consortiums are thinking about as they conduct due diligence.

Such a discount is highly unusual when a company has two companies looking at the books. But Billabong shareholders have wiped out a few times and are suffering from serious hope fatigue.

The VF-Altamont and Naude-Sycamore proposals, which value Billabong at $527 million, are both indicative and non-binding. That’s just like the deals put to Billabong by TPG Capital and Bain Capital in the middle of last year at $3.00-plus a share, valuing the company above $700 million.

Billabong then watched both companies walk away and was forced to raise capital.

Today, the battered iconic Australian retailer has been left with little choice but to grant due diligence to these new hypothetical bids, while chief executive Launa Inman gets her four-year turnaround policy off the ground and kicks out a bunch of executives.

Leighton Holdings, Macmahon Holdings, Sembawang Australia

A former joint venture partner of Telstra Corporation has reportedly made it to the second round of the bidding sales process for Leighton Holding’s telecommunications assets.

The Australian Financial Review reports that PCCW, controlled by billionaire Richard Li, is in the running for the Leighton assets, which include the fibre arm Nextgen, data centre operator Metronode and cloud computing company Infoplex. Macquarie Capital is running the process, which could raise $1 billion for the construction company.

Meanwhile, Leighton Holdings has picked up a $200 million worth of work on Esso Highland’s head office in Port Moresby, Papua New Guinea, as well as seeing off a rival proposal to nab the construction business of Macmahon Holdings.

Macmahon rejected a rival proposal for the construction business that was superior to Leighton’s $25 million offer, but conditional on due diligence and required Macmahon to approve the offer within a day.

Fortescue Metals Group, Oil Basins

Iron ore miner Fortescue Metals Group has walked away from a shale gas agreement with Oil Basins, embarrassing the target that appeared to think a deal was happening.

Oil Basins (OBL) went into a trading halt yesterday before informing the market that discussions with Fortescue over a the purchase of a cornerstone 18 per cent stake for $4.2 million, along with $10 million in supply commitments, had fallen over. The issue appears to have been price.

"OBL is presently fielding serious third party interest from an oil and gas exploration company in a similar transaction which may include a participation in a proposed placement,” the company said in a statement to the market.

Outside interest is definitely a good thing for a company that really looked to have Fortescue sewn up two months ago.

The two companies announced in mid-November that a deal was on the cards, but Oil Basins indicated that it would be done in five days – Fortescue didn’t.

As time went by, questions started to emerge about why a deal that appeared to be a fait accompli, and apparently was signalling Fortescue’s first foray into shale gas exploration to support its growing energy demands, was taking so long. Now we know.

The key takeaway from this is that Fortescue is clearly interested in securing shale gas for itself. Calling off the talks over price doesn’t necessarily indicate a change of heart, we just found out about a deal before it was cooked.

And while we’re talking about energy plays, The Australian Financial Review says analysts have nominated Cooper Basin operator Beach Energy, Canning Basin shale explorer Buru Energy and infrastructure company Duet Group as this year’s most likely takeover targets for the sector.

Rio Tinto, Harry Winston Diamond Corp

Just quickly, Toronto diamond giant Harry Winston Diamond Corp has sold its $US1 billion luxury unit to legendary Swiss company Swatch Group.

The seller indicated that it’s likely to use the cash for another transaction and all attention is centring on Rio Tinto's diamond business, which is up for sale.

Breakfast Deals would normally run a ruler over this, but Business Spectator’s Stephen Bartholomeusz covered literally everything yesterday, because he’s the man. Here’s the link, those interested should read the piece.

Whitehaven Coal, Shenhua Group, Nathan Tinkler

Whitehaven Coal shares actually lost ground yesterday as speculation continued that China’s Shenhua Group might be trying to pick up the embattled Nathan Tinkler’s 19.4 per cent stake.

Reuters reports that Shenhua is in talks with Tinkler’s main lender, Farallon Capital, over a possible purchase of the stake that’s currently valued at around $675 million.

Tinkler is widely suspected to have debts and interest payments of $700 million hanging over him. His people, many of which have been dealing with the pocketbook of wind up actions against some of his peripheral private vehicles, have always denied this, or refused to engage with the question when put to him.

Former would-be-Whitehaven-suitor Shenhua was outed on December 19 as having approached the Australian coalminer with a proposal to fold its coal assets into Whitehaven in exchange for equity.

Shenhua wanted to take out Whitehaven in 2011, but Beijing prioritised Yanzhou Coal in part because it needed to float some of its assets as part of the Felix Resources acquisition.

The word is that Whitehaven told Shenhua to realise its past dreams and come back with a full offer.

The funny thing is that just about everyone covering the story, including this journalist, ran with that idea rather than the obvious play for Tinkler’s stake.

Meanwhile, chief securities regulator Greg Medcraft has made his first public comments on the ANZ email hoax that briefly hit Whitehaven shares to the tune of 8 per cent.

Medcraft, who heads the Australian Securities and Investments Commission, said the media and investors need to exercise more caution after environmental activist Jonathan Moylan managed to coax members of both into thinking that ANZ had cancelled $1.2 billion financing for Whitehaven’s Maules Creek project on environmental grounds.

"Is that a logical thing that the ANZ Bank would do?” Medcraft asked.

There is a case to be made that ANZ’s cancellation of proposed funding for Gunns Limited back in 2008 does demonstrate a precedent of sorts, but comparing Maules Creek to the Bell Bay pulp mill is pretty meaningless.

On reflection, the real thing that stuck out is that ANZ would never have sent the email directly to journalists, without giving Whitehaven a chance to inform the market. Journalists might have gotten word that the news was coming, but never an official release.

While the Moylan hoax was flat-out sabotage and should be frowned upon, an analysis by Fairfax claims that only $450,360 was wiped from actual shareholder accounts via trades, which puts the $314 million valuation dive into perspective.

It should also be pointed out that companies routinely misinform the market through anonymous leaks to the media that serve their own purposes.

Wrapping up

BrisConnections lenders have reportedly written to the Queensland government with a warning that they’d be willing to put the company in receivership.

The Australian Financial Review understands that the letter was sent to the state government before Christmas. The concern is that BrisConnections’ net assets are worth less than the $3 billion it owes the banks.

Sticking with infrastructure, Australian Infrastructure Fund shareholders voted in favour of selling its highly valued airport assets to the Future Fund yesterday, as expected.

The vote means that the Fund will pick up stakes in the airports of Perth, Melbourne, Launceston, minor airports in Queensland and the Northern Territory and Statewide Roads, along with a 40 per cent stake in Hochtief Airport Capital, which owns stakes on a number of European runways as well as a small share of Sydney airport. In exchange, AIX picks up $2 billion.

Meanwhile, Origin Energy has pulled the sale of its Stockyard Hill Wind Farm in Victoria, letting down investors in China, the US and Australia that had expressed interest. Apparently, Origin had a change of heart about the strategic reasons for deploying the asset.

In media, Seven West Media has picked up the free-to-air broadcasting rights for the V8 Supercars for a lower price than the previous contract.

The Australian reports that the two-year agreement was picked up for about $18 million a year, compared to $28 million in the last three-year deal.

And finally, ANZ Bank has inked a tentative agreement with China UnionPay, which will allow its customers to use the giant payment system provider’s Asia Pacific network.

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