BREAKFAST DEALS: Billabong's bait

Billabong prepares to unveil a new turnaround strategy, while the Future Fund gets cracking on Australian Infrastructure Fund.

Billabong International chief executive Laura Inman will unveil her strategy to turn the embattled retailer around, as predators circle. The Future Fund will begin due diligence this week on a $2 billion splash into Australian airport assets. Meanwhile, Australia Post looks to have missed out on Salmat’s sale, as Nathan Tinkler’s Whitehaven privatisation bid falls over. Finally, Fortescue says it’s open to a partner once its expansion plans are done.

Billabong International

Struggling surfwear company Billabong International is expected to give investors some idea of which brands could be offloaded as part of Laura Inman’s strategy.

The new chief executive will hand down her first set of annual numbers today with chief financial officer Craig White, along with the company’s turnaround plan. The figures won’t be pretty.

All the while, TPG Capital is hanging over the stock with a $695 million proposal to take over the company, at $1.45 a share.

Late last month, Billabong granted TPG due diligence, but The Australian understands that this hasn’t begun yet.

So Inman has a bit of breathing room to unveil her strategy and let the shareholders decide whether or not they like it. This can go one of two ways.

The first is that the strategy encourages the register, which has watched the stock plunge from $18 in 2007 to $1.35 at Friday’s closure. Billabong got a brief bump in February from the sale of an almost 50 per cent stake in its Nixon accessories brand to Triatlantic Capital Partners.

The second is that the register isn’t impressed by the proposal and agitates for a deal with TPG.

The complicating factor is, and has always been, Billabong founder Gordon Merchant. He holds about 16 per cent of the register but commands a much greater sway over the company.

Whether Merchant continues to enjoy the same kind of control over Billabong is not clear, but he’ll have a big say in the company’s destiny no doubt.

Some believe that if Billabong does eventually fall to TPG, the deal could be structured in a way that allows Merchant to continue to participate in the business.

That’d be complicated, private equity tends to like to have free reign over a company.

But none of this has a chance of coming to fruition until the conclusion of due diligence.

In the meantime, it’s over to Inman.

Future Fund, Australian Infrastructure Fund

The federal government’s Future Fund will this week take a look at the books of Australian Infrastructure Fund after throwing up a $2 billion bid for the airport investor.

The move will give the Fund stakes in Perth airport, Queensland airports, Northern Territory airports and the vehicle that controls Melbourne and Launceston airports, along with holdings in the airports of Athens, Dusseldorf and Hamburg.

The offer of $3.22 per security offer remains conditional and non-binding, but it’s sufficient enough to get the target warmed up enough to open the books up.

The target has tapped Credit Suisse as financial adviser and Freehills for legal advice.

The deal thrusts Hastings Funds Management back into the spotlight. The manager was easing from the financial headlines after APA Group won a recommendation from the board of target Hastings Diversified Utilities Funds.

Salmat Limited, Fuji Film Holdings, Australia Post

Listed business communications company Salmat Limited has reportedly sold its direct-mail arm to Japan’s Fuji Film Holdings, leaving Australia Post wanting.

According to The Australian Financial Review, Salmat will receive $375 million for the sale of Business Process Sourcing to the Japanese firm, with Australia Post believed to be an interested party that will miss out. Computershare is also thought to be another potential bidder.

Salmat put the business up for sale in May after some unsolicited offers. The proceeds are likely to be used to pay down debt.

It’s been clear for a while that Australia Post is in the market for acquisitions, but there’s a mystery surrounding whether it’s part of a fixed strategy or if the company could potentially quickly splay in a few different directions.

In a way, Australia Post is in the same position as Fuji. The famous company camera company is moving into services and solutions where the decline of print, including photography, can’t bite.

Whitehaven Coal, Nathan Tinkler

Now that Nathan Tinkler has given up his $5.1 billion bid to take Whitehaven Coal private, two questions remain.

Firstly, and most immediately, could short-sellers put serious pressure on the indebted Tinkler into a margin call? Secondly, could Tinkler pull through this period to return one day with another bid?

On the first point, the market’s reaction on Friday didn’t do Tinkler any favours. The share price quickly plunged 18 per cent, eventually closing down 11 per cent at $3.09.

That leaves Tinkler with a stake in Whitehaven valued at around $657 million. Fairfax believes that Tinkler’s total liabilities could be up to $638 million, which puts the coal baron in a dicey position.

It should be emphasised that this is also held against Tinkler’s various other private assets. But between the apparent financial stress at his private horseracing company Patinack Farm and investment vehicle Mulsanne Resources, that debt-burden is a problem.

Fairfax also passes on word from an analyst that potential equity partners were turned off taking Whitehaven private with Tinkler because they were afraid of a collapse.

Tinkler’s spokesperson apparently said that debt estimation is off and the bankruptcy fears from equity investors are rubbish.

What’s clear however is Tinkler’s ability to take Whitehaven off the ASX rests with the confidence of private lenders. Their confidence stems from the coal price.

Until the price of coal rebounds, the window for Tinkler to bring another bid for Whitehaven remains limited.

In the meantime, short-sellers will be watching the press for any more news that the coal kid is struggling to make his bills elsewhere.

Fortescue Metals Group

Fortescue Metals Group is reportedly open to taking on a strategic partner to grow its production in the Pilbara over the longer-term.

Speaking to The Australian, FMG chief executive Nev Power started looking beyond the company’s well publicised expansion plans to triple production by next year.

Power said he "wouldn't necessarily discount” the possibility of bringing in another party.

The news does confirm the long-held perception that the third force in Australian iron ore may need some help down the way.

But on the other side, the comments sharply contrast with the dour tone emanating from BHP Billiton last week, which was then replicated in some of the upper echelons of government with calls that the mining boom is over.

Wrapping up

Media watchers should keep an eye on Fairfax Media this week for some post-scripts to the attempted sale of a 5 per cent stake by major shareholder, mining giant Gina Rinehart.

The sale came amid ongoing speculation about predators sizing the company up and the possibility of a break-up play.

Meanwhile, retail giant Woolworths was forced to take a $420 million write-down on its struggling electronics retailer Dick Smith – an electronics retailer that Woolies is trying to get rid of at the moment.

Woolworths didn’t give much of an insight into how the elongated sales process is going; merely that it is "ongoing”.

But, Fairfax reports that a shortlist of potential buyers has been cobbled together and a deal is tipped to follow soon.

Also in retail, billionaire Solomon Lew has in the end agreed to tilt $11 million into Country Road, which opens the door to the acquisition of women's clothing retailer Witchery.

Previously Lew’s investment vehicle, Australian Retail Investments, had raised objections to the raising, which from one angle could have been an attempt by South Africa’s Woolworths to dilute Lew out of his 11.8 per cent stake. But now, all is well.

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