Breakfast Deals: Billabong swell

Billabong shareholders are pushing for a deal with Centerbridge and Oaktree, while United Petroleum may be up for grabs.

Billabong International’s board is under pressure to have a proper look at late arrivals Centerbridge Partners and Oaktree Capital. The US pair think they can get a deal done in a week. Ah ha, we’ll see about that. United Petroleum has reportedly received a bit of interest before even starting a sales process. Perhaps it’s time to pull the trigger. Elsewhere, Boart is facing a tough road whether it refinances or raises capital, and people are caring less and less about what Labor says about GrainCorp.

Billabong International, Centerbridge Partners, Oaktree Capital, Altamont Capital

Troubled surfwear company Billabong International will today release its full-year results to a bevy of interested onlookers as a private equity fight continues to swirl around it.

Given the staggering length of time Billabong’s future has been caught in a rip, management can expect a grilling from analysts as it prepares to report a widening loss of over half a billion dollars, thanks to big writedowns.

Forced to request six trading halts in the past year, Billabong’s latest conundrum is a recapitalisation deal from US private equity firms Centerbridge Partners and Oaktree Capital. The private equity groups slung the deal Billabong’s way after it had signed a financing agreement with Altamont Capital.

Centerbridge and Oaktree had obviously thought long and hard about the proposal in light of the fact the battle for Billabong has been going on for 18 months. The joint venture is, however, confident it can wrap up a deal within a week if Billabong comes to the party.

Like the promises of a resolution on the Essendon saga, we’ll believe it when we see it.

On the surface, the Centerbridge and Oaktree offer appears superior – they will buy stock at an 80 per cent premium to Altamont and offer shareholders the right to buy in at nearly a 90 per cent discount to the current share price, though shareholders have the right to ask: where have you been for the past year?

Meanwhile, The Australian Financial Review reporting the Billabong board has been warned it could breach its fiduciary duties should it ignore the Centerbridge and Oaktree offer. A source close to the consortium told the AFR a class action from shareholders could be expected should the board dismiss the last minute plan.

While this is an arduous process for shareholders, there is one plus: private equity companies still view Billabong as a company worth fighting for. The downside, it’s private equity.

United Petroleum

Australia’s largest independent fuel supplier and retailer, United Petroleum, is reaching a D-Day of some sort.

The Australian Financial Review understands that expressions of interest were received from possible buyers last week. Vitol and Trafigura have been named and big private equity firms are, unsurprisingly, also in the mix. 

The thing is, United hasn’t actually fired the starters gun on a sales process and is consulting with adviser KPMG Corporate Finance.

If they do choose to opt for a sales process Ausfuels and Caltex Australia are expected to have a look. The problem there is that the Australian Competition and Consumer Commission, which is particularly sensitive to fuel price competition, would have a good look at Aussie buyers.

Boart Longyear

Drilling contractor Boart Longyear is facing two fraught scenarios after yesterday’s enormously concerning results.

Business Spectator’s Stephen Bartholomeusz reports that the 35 per cent slump in revenue strongly underlines the extent and pace of the downturn in mining services. For the skinny on Boart’s broader story, check out that piece.

Let’s talk possible deals. Boart boss Richard O’Brien, a former Newmont executive, has to repair Boart’s balance sheet and he has two options. The first is a renegotiation of its debt facilities and, perhaps, some new debt from the US.

The contractor is staring at higher interest rates, at a time when the business is in trouble, because if nothing’s done, Boart could breach its covenants.

The alternative is an uglier item for Boart than other – a capital raising.

The problem for Boart is it already tapped investors for funds back in 2009 and boy oh boy it was a big deal.

The emergency raising almost trebled the amount of stock on the market. Before then Boart stock was trading around $35. After yesterday’s 11.7 per cent slide the company’s shares are changing hands at 49 cents a pop, giving it a market cap of just $226 million.

Just how keen would shareholders be about handing over some coin with those numbers?

GrainCorp, Archer Daniels Midland

With the tide of the election campaign appearing to drift away from Prime Minister Kevin Rudd, the question of Australia’s attitude towards foreign investment, particularly agriculture, is lessening as a discussion between Labor and the Coalition.

It’s largely a discussion between the Liberals and The Nationals. It’s a discussion about GrainCorp.

A substantial shareholder notice lodged to the ASX yesterday shows US suitor Archer Daniels Midland has built a stake in GrainCorp of 26.8 per cent. On Friday it extended the $3 billion-plus offer, which was set to expire at the end of August, until November 16.

The election is set for September 7. That would give then former opposition treasurer Joe Hockey very little time to consider a deal that is a vexing one for the National members of the Coalition.

Hockey’s getting a lot of press for comments in June where he appeared to spell out what he thinks of how Australia should approach foreign investment.

“I want to reassure you that we are not proposing major changes to the foreign investment environment and are certainly not intending to restrict the flow of foreign capital into Australia,” Hockey said in a speech.

The basis for the Nationals objections to some, not all, foreign investment in agriculture is that Australia is losing its ability to determine its own path to becoming a food bowl for Asia. Those decisions are increasingly being made by foreign companies.

They’re particularly sensitive about GrainCorp falling into foreign hands because it’s argued by some to be an all-too powerful monopoly port infrastructure holder on the east coast.

The fact remains however that Australia’s agricultural sector needs just the kind of investment ADM is bringing. Fewer people are wondering whether Labor’s implied support of the deal will be a factor. It’s now expected to be a fight between the Liberals and the Nationals.

M2 Telecommunications

One of Australia’s quickest growing telcos is taking a breather after 20 acquisitions in the last five years.

M2 Telecommunications reported a 33 per cent lift in net profit for the year to June yesterday, following the acquisitions of Dodo, Eftel and Prime Telecom in the last year alone for a total for $434 million.

Wrapping Up

The float of the Centuria Property Trust is up in the air after institutions showed little interest in its bookbuild, according to The Australian.

The company’s promoter Centuria Capital hasn’t given up, holding meetings overnight with advisers Macquarie Capital, CIMB and RBS Morgans to revive the IPO, according to the report.

Staying in property, troubled funds manager Aspen Group has announced the sale of its $311 million portfolio of commercial loans in a bid to ease concerns amongst investors.

Aspen slumped to a loss of $34.3 million for fiscal 2013, following a $147 million in the previous year, in spite of a series of asset sales. 

In mining, an original backer of Whitehaven Coal has sold down his stake in the company.

According to documents filed to the ASX, Hans Mende has lowered his stake in Whitehaven to 5.97 per cent from 7.15 per cent.