BREAKFAST DEALS: Billabong two

After a rough year, Billabong investors now face the prospect of a lesser bid from TPG, while Alesco dismisses Dulux's increased offer and Tatts talks to Ireland.

Billabong investors have had a tough ride this year, suffering a series of earnings downgrades and a heavily discounted capital raising. Now they might also need to settle for a lower bid from private equity group TPG, which is said to be back on the hunt for a surfwear bargain. Meanwhile, Alesco rejects DuluxGroup's artificial sweetener, and speculation is Tatts is in lottery talks in Ireland.

Billabong International, TPG

TPG is apparently preparing to take another shot at Billabong International this morning – although the buyout offer appears have soured, rather than sweetened, since the private equity giant's initial approach in February.

The Australian Financial Review reports TPG is poised to unveil a $1.45-a-share offer for Billabong, valuing the surf retailer at about $659 million. That's more than $200 million less than the value of the $3.30-a-share the private equity giant offered in its failed tilt earlier this year.

However, the new bid would still represent a 32 per cent premium to Billabong's last-traded price of $1.10.

Since TPG first came knocking at Billabong's door, profit downgrades and a heavily discounted capital raising have collapsed the retailer's share price. The company was also forced to replace its long-time chief executive, Derek O'Neill, with Target's former boss, Launa Inman, in response to investor concerns about the company's management.

It is understood the new offer will have the support of Colonial First State and Perennial Value, which are among Billabong's largest shareholders, after the pair informally committed to the deal, according to The Australian Financial Review.

Billabong founder Gordon Merchant, who holds a 15 per cent interest in the company, also revealed in an interview with the newspaper last month that he felt "bad" about rejecting TPG's first offer, and that he was ready to accept less.

Billabong is said to have kept Goldman Sachs on as an advisor for the deal, while TPG is working with Macquarie.

Of course, Billabong is not the only big-name Australian company in TPG's sights. Reports have recently linked the private equity group to a potential $3 billion tilt at Nine Entertainment, alongside Hollywood mogul Harry Sloan.

Given the obvious differences between Billabong and Nine, and TPG's very deep pockets, it's unlikely that the success of one bid would have much of a bearing on the other.

Alesco Corporation, DuluxGroup

There's finally an end is in sight in DuluxGroup's protracted battle for control of Alesco Corporation, after the paintmaker stamped an August 28 expiry date on its new, "best and final" $210 million bid for the garage door and kitchenware maker.

Dulux took the offer hostile yesterday, lifting its cash offer from $2 to $2.05 and adding 18c of franking credits – touting total value up to $2.23-a-share. However, Alesco quickly rebuffed it as "materially inadequate," advising investors to ignore the bid entirely.

That's partly because the bid is built on a promise by Dulux that Alesco would lift its dividend to 42c (including the 18c in franking credits) in the event of a sale. The target is currently only planning to pay 15c (5c final and 10c special), and analysts doubt the company has the balance sheet to support a 42c payout.

Dulux chief Patrick Houlihan says the 42c figure relates to the expert's report, which said Alesco could pay a dividend worth $25 to $30 million, or about 13c worth of franking credit. Apparently Houlihan decided Alesco could afford his higher offer of 18c in franking credit based on the target's own indications.

Dulux, which already owns just under 20 per cent of Alesco, will extend the offer period to August 28 to ensure investors that have accepted the offer will remain on the register as at the dividend date of August 17 and will receive any final and special dividends and franking credits.

Expect Alesco to be quizzed about its rejection of the offer when it hands down its full-year results later today.

Tatts Group

Australian gaming firm Tatts Group has been named among potential buyers for Ireland's National Lottery license, in a deal that could be worth up to €600 million ($704 million).

Ireland's Independent newspaper reports Tatts' management has held talks with the Department of Public Expenditure there, regarding the upcoming sale of the 20-year license to operate the Irish national lottery. However, it's early days – the government is still searching for an advisor for the deal.

Michael Mangos, spokesman for Tatts Group, told The Age that Tatts would take a look at the business, depending on the form the final model takes. The local gaming company is also likely to come up against bids from Camelot, which is owned by the Ontario Teachers' Pension Plan, and perhaps even Gtech Corporation, a subsidiary of Italy's Lottomantica.

Bank of America analyst Mark Bryan last month tipped Camelot as the most likely buyer.

Ernst & Young

Ernst & Young expects a new flurry of takeover activity in the global resources sector, as higher capital costs and lower commodity prices force the big global miners to shift their focus from building businesses to buying them.

A new note from the firm says the total global value of deals in the sector fell 38 per cent to $55.7 billion in the six months to June 30, compared to the same period last year. The total number of deals was also down 19 per cent at 470.

However, Ernst & Young’s global mining and metals transaction leader, Lee Downham, says new momentum is building.

"Strong balance sheets, favourable long-term fundamentals and lower valuations are creating an attractive environment for cautious M&A," says Downham, who sees "opportunistic" and "one chance" deals emerging.

In Australia, dealmaking has been driven by domestic consolidation – mostly in the coal industry. We recently saw Rio Tinto and Mitsubishi Corp buy Coal & Allied Industries, and Peabody Energy Corp take control of Macarthur Coal. Nathan Tinkler would love to join that group with his proposed Whitehaven Coal takeover.

As more and more miners put mega-projects on hold – BHP Billiton's Olympic Dam is a good example – there might also be more money on the table for mergers. Although dealmakers will be competing with shareholder calls for capital returns.

Wrap up

Embattled construction group Leighton Holdings has found some relief in Australia's mining sector, as its subsidiary Theiss picks up a $2.3 billion contract to ramp up production at Jellinbah Group's coal operation in the Bowen Basin.

The new six-year contract covers mine operations and maintenance at Jellinbah's Lake Vermont coal mine, and is aimed at doubling the deposit's current output to eight million tonnes a year. The mine is a joint venture between Jellinbah, which owns a 70 per cent stake, and Marubeni Coal, Sojitz Coal and AMCI, which each own 10 per cent.

Elsewhere, analysts have thrown their support behind Ten Network's sale of its outdoor advertising unit Eye Corp, which was snatched by CHAMP Private Equity for up to $145 million last week.

UBS estimates the sale will cut Ten's debt level to among the lowest for traditional media companies, according to The Australian Financial Review. The broker calculates that the broadcaster's net debt-to-EBITDA will fall to 1.8-times, compared with Fairfax's 1.9-times, Southern Cross Media's 2.8-times and Seven West Media's 2.7-times.

JP Morgan also chimed in to say the sale was a reasonable outcome.

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