BREAKFAST DEALS: Billabong's backup

Billabong have a new chairman if TPG talks fail, and Ingham is getting some private equity love.

Billabong International has a new chairman on standby if the TPG Capital talks fall through, but calls by a shareholder lobby group for founder Gordon Merchant to go have missed the mark. Ingham Enterprises is reportedly getting some attention from private equity firms, while Asian buyers still loom large. Meanwhile, Arrium is leaving nothing to chance in its defence against Steelmakers Australia, Nine Entertainment had the briefest of phone calls to get its lenders talking again, there’s a possible bidder war brewing for Acer Energy and billionaire KT Lim’s nephews are coming Down Under as uncle stalks Echo Entertainment.

Billabong International, TPG Capital

Embattled surfwear company Billabong International has gone for a safe pair of hands to take the chair if a $695 million bid from TPG Capital doesn’t pan out.

Billabong announced that former Just Group chairman Ian Pollard will take over from outgoing Ted Kunkel, but only in the event that the company remains publicly owned.

The iconic company’s share price is still reflecting a sense of misery after Bain Capital promptly pulled out of talks and a report emerged indicating that TPG was thinking of doing the same – a claim that Billabong couldn’t refute.

Discussions are ongoing with TPG but if Billabong can’t do a deal, there’s call for more change at the top.

The Australian Shareholder Association is calling for Billabong founder Gordon Merchant and Colette Paull to be dumped from the board at the annual general meeting on October 24.

"In his position as majority shareholder he effectively prevented the board of directors accepting an offer of $3.30 per share from TPG Capital in February 2012,” the ASA said on its website.

"Not to sell or refusal to negotiate cost both him and all shareholders very dearly.”

In regards to Paull, the ASA said, "she acted co-jointly with Gordan Merchant”.

Firstly, this columnist has a big problem with the word "co-jointly”.

Secondly, Merchant isn’t a majority shareholder; the latest annual report for the upcoming AGM puts his holding at 15.7 per cent.

It’s been argued, quite widely, that Merchant exudes a level of control over the company far beyond what his shareholding would warrant through personal connections that he’s built up as the founder and former boss.

If that’s what the ASA is getting at, have at it. The lobby group generally has a problem with former executives taking a board seat anyway.

But don’t call him majority shareholder. Call him ‘spiritual majority shareholder.’

Ingham Enterprises

Private equity firms are reportedly coming out of the woodwork for Australian poultry giant Ingham Enterprises.

According to Reuters, Blackstone Group and Affinity Equity Partners have expressed interest in company, with indicative bids due sometime next week.

Investec is running the show here, which doesn’t include the Ingham family’s property portfolio last valued at $358 million.

Reuters spoke to a source that believes the poultry business could collect up to $1.4 billion. Previous reports have indicated that the Ingham family is hoping for something like $1.6 billion.

International players arguably have an inside track on this deal because the concentrated nature of Australia’s chicken and supermarket industries mean local operators could raise competition concerns.

Ingham and rival Baiada control about 75 per cent of the local poultry market, which means a tie-up between the two would probably be a non-starter with the Australian Competition and Consumer Commission (ACCC).

Wesfarmers and Woolworths would love to get their hands on Ingham but consumer watchdog boss Rod Sims has a problem with the latter acquiring three hardware stores in Ballarat. How would taking out one of Australia’s two largest chicken companies go down?

We’re also expecting to see a number of Chinese suitors emerge for Ingham.

Arrium, Steelmakers Australia

Arrium is taking a proactive approach in its defence against a $1 billion takeover over from Asian consortium Steelmakers Australia.

The company has offloaded its majority stake in Steel & Tube Holdings, a publicly listed company in New Zealand that processes and distributes a number of steel products to Kiwi manufacturing and rural industries.

An investment bank has been appointed, though Arrium didn’t indicate which one, to manage the sale that’s expected to raise $73.4 million that will go towards paying off debt.

This comes on the back of Arrium’s promotion of its iron ore division and upgrading its sales and port expansion plans.

The two moves are designed to address the two main concerns the market has with Arrium that Steelmakers, led by Hong Kong listed Noble Group and South Korea’s POSCO, are exploiting: a $2 billion debt and a weaker iron ore price.

As Fortescue demonstrated earlier this month, Australian iron ore plays outside BHP Billiton and Rio Tinto can quickly run into trouble particularly if they’re carrying a lot of debt.

Arrium chief executive Geoff Plummer was quick to address the obvious question of whether the company might be sacrificing a strategic partner now for cash to pay off a little bit of debt.

"We have a strong relationship with Steel & Tube and would expect Steel & Tube to continue to be one of our key trading partners in that market,” said Plummer in a statement to the market.

Arrium might look like it’s overdoing it with the register showing clear signs of support in its decision to rejected Steelmakers Australia at 75 cents a share.

But the bidders are big and patient. The longer the iron ore price stays subdued, the more the Arrium register will need to have evidence that the company is actively getting rid of non-core assets in the pursuit of growth.

Arrium chairman Peter Smedley knows that all too well. The coathanger Braiform business proved to be a consistent headache for Spotless Group during the talks with private equity group Pacific Equity Partners.

Nine Entertainment, Goldman Sachs, Apollo Global Management, Oaktree Capital

Is short really so sweet? Nine Entertainment chairman Peter Bush and chief executive David Gyngell put their restructure proposal to lenders yesterday in a conference call, but it was a short one.

The Australian Financial Review understands that call lasted "less than half an hour,” while The Australian believes it was only about 10 minutes.

On the line were representatives from mezzanine lender Goldman Sachs, senior US hedge fund lenders Apollo Global Management and Oaktree Capital.

Bush and Gyngell outlined a plan to the lenders responsible for its $3.3 billion debt burden that would give Goldman equity in the single digits. The investment bank was originally seeking 30 per cent, but the US hedge funds were not amused.

The Australian Financial Review reports that Goldman would also receive warrants under Nine’s proposal that would give it some coin in the event that Nine was sold down the track for more than $2.3 billion.

By all accounts, the conference call appears to have been Bush and Gyngell explaining the proposal and the justification for it, and little else.

Now it’s up to the warring lenders to think about whether they want to rekindle discussions that fell apart last time around.

BHP Billiton

Mining giant BHP Billiton is tapping Australian dollar-denominated bonds for the first time in 11 years.

ANZ Bank and Commonwealth Bank managed the issue that raises $1 billion in five-year bonds at 90 basis points above the underlying swap rate.

That’s pretty skinny, so it’s fair to say that BHP found some solid demand in the market. The big miner usually taps the US market for its bonds, with a single trade in February raising $US5.25 billion.

As Business Spectator’s Cliona O’Dowd explains, big corporates are tapping the bond market in droves as traditional lenders, the banks, come to terms with greater capital requirements under Basel III.

O’Dowd says, higher bank funding costs are coming at a time when government bonds are going out of style thanks to the global financial crisis. Hence, corporate bonds provide a solid rate for the blue chips and a relatively low risk investment for the nervous investor.

Acer Energy, Senex Energy, Drillsearch

There’s an interesting dynamic unfolding at Acer Energy, with Senex Energy jumping in for a 6.4 per cent stake.

The Senex move comes after Drillsearch picked up 19.9 per cent of Acer – the bid threshold – late last week before announcing a $116 million bid at 25.5 cents a share.

Drillsearch bought its stake from Acer’s largest shareholder, Singapore’s Republic Investment Management (RIM), which also intends to sell its remaining 18 per cent in the target to the bidder if a superior offer isn’t forthcoming.

Here’s where Acer comes in. The Australian Financial Review understands that Senex has held talks with the target and might think about trumping Drillsearch.

There’s also been some discussion that Cooper Energy might enter the fray.

Wrapping up

An interesting side story has opened up in the play for Echo Entertainment by Malaysia’s gaming billionaire KT Lim and our very own James Packer.

Lim’s nephews Lim Keong Yew and Benjamin Lim Keong Hoe are preparing to assume control of ASX-listed Two Way. The target is worth a mere $4.3 million, but the reverse-takeover on offer could quickly change that for the better.

Meanwhile, another company controlled by mining tycoon Nathan Tinkler has failed to meet its obligations.

Francis Street Holdings was hoping to purchase a building near the Brisbane river but was unable to settle the $40 million deal after seeking an extension.

Still in resources, Tokyo Gas is reportedly speaking to BG Group over taking a 10 per cent stake in the company’s $20 billion LNG project in Gladstone, Queensland.

The Australian reports that the deal could be worth up to $1 billion and would include the purchase of one million tonnes of LNG annually.

Meanwhile, The Australian Financial Review understands than another LNG major leaguer, Origin Energy, is one of the companies that Citigroup is seeking out as a possible bidder for the Cobbora coal site in New South Wales.

And finally, Qantas Airways chief executive Alan Joyce continued to sell the carrier’s 10-year alliance with Emirates, saying that local jobs would not be lost as a result of the deal and that it has no plan B. Joyce also said that Sydney needs a second airport… too right it does.