BREAKFAST DEALS: Billabong snub

A battle looms at Billabong as the founder rejects yet another offer, while Ludowici shareholders win compensation.

The key for private equity stalkers lining up troubled Australian companies is to get into their books. It’s not just a bare bones look at the company they desire, but a signal that the target is ready to deal at some price. TPG Capital hasn’t had much luck with Billabong International, having been rejected for the second or third time – depending on your perspective – but it is reportedly starting some very early due diligence with Pacific Brands. Meanwhile, the Takeovers Panel has ruled that the bidding spree for Ludowici can continue, but Danish company FLSmidth has to reimburse shareholders who were duped. Elsewhere, Goodman Fielder shareholders are betting on a bigger offer they can accept, New Hope is praying to get an offer they can accept and Gloucester Coal talks with Yancoal Australia are ticking along nicely.

Billabong International, TPG Capital, Pacific Brands

Surf clothing company Billabong International has in all likelihood killed the approach from private equity firm TPG Capital dead in its tracks. Billabong rejected TPG’s proposal for a second time – technically a third – despite a decision by the private equity firm to increase the dollar figure from $3 a share to $3.30 a share. That values the company at $842 million and represents an 84 per cent premium to Billabong’s trading price before TPG’s interest was outed, but Billabong founder Gordon Merchant says he wouldn’t sell the company if the offer was $4.

The rapid 10 per cent increase in TPG’s offer strongly indicates that it was being opportunistic – such behaviour is very un-private equity-like – and Billabong is right to say the company is more valuable than the share price would indicate. However, Merchant and fellow director Colette Paull have engaged Minter Ellison as lawyers separately to the rest of the board, which gives suggestions that Billabong is headed for a board and management cleanout. The Australian Financial Review understands the pair has also called in Greenhill Caliburn.

Meanwhile, the same newspaper understands that TPG has some more encouraging news to dwell on. Apparently, TPG has started very preliminary due diligence with Pacific Brands. Of course, PacBrands is under takeover offer from Kohlberg Kravis Roberts, with a proposal in the order of $600 million to $700 million thought to be a likely outcome if things go well.

Ludowici, FLSmidth, Weir Group

Shareholders in Ludowici who sold out when FLSmidth had a bid of $7.20 on the table and a postscript from chief executive Jorgon Huno Rasmussen saying that’s as far as it would go, will be compensated. The Takeovers Panel has ruled that FLSmidth can continue to bid for the Brisbane-based mining equipment maker, provided that it delivers compensation to shareholders that offloaded stock at $7.20, only to watch the Danish company increase its bid to $9.87. Now, of course, the bidding has reached $11 a share, with FLSmidth still holding the lead over UK-listed rival bidder Weir Group.

While we’re on the topic of takeover regulators, the Foreign Investment Review Board is being called upon to clarify its guidelines on bids by foreign state-owned firms for Australian assets. According to The Australian, Nomura head of mergers and acquisitions Grant Chamberlain made the calls while addressing a seminar in Sydney, claiming that FIRB’s policy in such circumstances was "like a black box”.

Goodman Fielder, Wilmar International

Shareholders in breadmaker Goodman Fielder have shown they expect Singapore’s Wilmar International to pay a lot more if it wants a greater slice, or indeed all, of their company. Wilmar was revealed yesterday as the buyer of a 10.1 per cent stake in Goodman at 60 cents a share, valuing the target at $1 billion. Goodman shares however finished the session at 68.5 cents, a 14 per cent premium.

Wilmar’s intervention does two things. It probably blocks private equity players from sweeping in and crashing the party – and there was some speculation that a few had given Goodman a once-over. Secondly, it forms a perfect platform to launch a bid for the rest of the company. That platform could be comparatively cheap compared to its 60 cents buy in, with some analysts pointing to a figure at least 14 per cent higher.

New Hope

New Hope chairman Robert Millner might be showing signs of what analysts have suspected for months – a deal is not likely. In the miner’s quarterly results New Hope said that a number of parties were still conducting due diligence, then immediately said there is no guarantee of a sale.

The number of parties said to be interested in New Hope has dwindled as the months have dragged on and while the standard ‘there are no guarantees’ line has been used by the miner – which is hoping for $5 billion-plus – previous announcements have read much more convincingly.

Gloucester Coal, Yanzhou Coal

Meanwhile, Gloucester Coal also handed down some numbers yesterday. The difference between itself and New Hope is its deal appears to be very alive and well. Yanzhou Coal, or Yancoal Australia, is in talks with Gloucester over an $8 billion merger and The Australian says the discussions are going as expected.

Yanzhou would have been considered a likely bidder for New Hope once upon a time, but now that it has its own dance partner who can guide it through the steps necessary to list 30 per cent of its assets on the ASX – part of the agreement with the federal government to secure Felix Resources in 2009 – New Hope just looks flat footed by comparison.

Telstra, NBN Co

Telstra Corporation chief executive David Thodey has finally received the blessing from the competition regulator to split his company’s retail and wholesale arms in exchange for $11 billion from the government. The Australian Competition and Consumer Commission is now satisfied with Telstra’s plan to shut down its copper network as the national broadband network is rolled out, and share existing infrastructure so the overall cost of the NBN is minimised.

The tone of ACCC chairman Rod Sims has changed significantly from the 'concerns' he rose last year to the 'substantial' improvements that Telstra has made to the deal. Now Telstra must brace itself for a likely Coalition victory and an all-too-eager Malcolm Turnbull.

QBE

Incoming QBE chief executive John Neal says his appointment will be "more about evolution rather than revolution” when he takes the reins from the legendary Frank O’Halloran. Neal maintains that QBE will continue to look for acquisitions that defined so much of O’Halloran’s time at the insurer – which is set to end in August – but it will search mostly for bolt on acquisitions that add no more than $US400 million of premium income.

The general verdict on O’Halloran’s career at QBE is that he’s a dead-set legend that’s leaving the CEO’s chair after the most challenging time in the insurer’s history with him at the helm. Morgan Stanley and Macquarie Group were called in to manage a $US500 million ($A467.3 million) capital raising at $11.50 a piece, which is an 8 per cent discount on the last trading price.

Wrapping up

Fortescue Metals Group founder and chairman Andrew Forrest will today become the subject of a High Court battle to establish the specifics of continuous disclosure rules. The case will deal with some of Fortescue’s most important deals, from when the fledgling company is argued to have misled investors over agreements signed with a Chinese company to build infrastructure in the Pilbara. Still in iron ore, Atlas Iron executive chairman David Flanagan says his company will fight any takeover offer from rivals looking to boost their port capacity with great fervour.

Local private equity player Pacific Equity Partners has coaxed six lenders into refinancing Griffin Coal’s debts amid a longer than expected wait to offload the New Zealand biscuit maker, The Australian Financial Review reports. You might remember PEP tried to offload Griffin late last year, or at least gave it a good crack, only to find that while China’s Bright Food Group, Manassen Foods and Rothschild were all interested, nothing became of it.

In financial services, JBWere is poised to announce to the market a new partnership with Swiss bank Lombard Odier in a bid to attract more clients, The Australian reports. And finally, the Royal Bank of Scotland has been forced to close its Australian fixed income, commodity and currency trading arm and relocate 80 employees with not enough demand for these local operations of the once mighty UK bank.

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