Breakfast Deals: Biting into Billabong

More waves may be in store for Billabong as yet another US hedge fund takes a stake, while CLP Holdings is downbeat on Energy Australia.

Billabong International simply can’t shake the New York hedge funds with yet another player nosing around in its business. Meanwhile, CLP Holdings isn’t talking positive in relation to EnergyAustralia, Westpac Bank is reportedly digging on the Lloyds core business sale in Australia and David Jones and Dick Smith are joining forces over consumer electronics.

Billabong International, Coastal Capital

Surfwear company Billabong International has been booked by the Australian Stock Exchange for speeding as yet another American hedge fund shows its interest in the company.

The ASX received no answers from Billabong as to why its share price has rallied from 44.5 cents last Thursday to an intraday high of 65 cents at the time of the ticket. If you go back to June 24 the stock was trading at 13 cents. That’s quite a rally.

Yesterday it emerged that upstart US-hedge fund Coastal Capital has picked up a 5 per cent stake in Billabong.

This comes on the back of the refinancing agreement with New York’s Altamont Capital, which includes a debt-for equity swap. It’s a swap that late-arriving takeover rivals Centerbridge Partners and Oaktree Capital, also from the US, are objecting to via the Takeovers Panel.

Billabong directors are unanimously recommending that shareholders accept the Altamont deal, assuming the Takeovers Panels gives it the green light.

Of course, Coastal Capital is now one of those shareholders and it has some pedigree when it comes to trying to derail a deal. In March 2011 it tried unsuccessfully to upset the TPG-led $2 billion debt-for-equity swap with Alinta Energy.

By this stage Billabong must be thinking ‘what is it with these damn Yankees?’

Last week, law firm Gilbert Tobin said hedge funds and distressed debt funds would increasingly eye miners with these kind of debt-for-ownership deals as commodity prices dip.

CLP Holdings, EnergyAustralia

While hope is undoubtedly returning to the IPO industry, one of the companies that has consistently loomed as a potential spark for the resurgence is showing more signs of remaining in private ownership.

Hong Kong’s CLP Holdings, the owner of EnergyAustralia, has strongly indicated its interest in floating the business on the Australian Stock Exchange.

But in the company’s latest set of results it said EnergyAustralia faces “immense difficulties” due to the state of the Australian economy and faces “unfavourable and uncertain regulatory risks”.

Chairman Michael Kadoorie offered a deflating assessment of some of the factors required for CLP to comfortably float EnergyAustralia.

“The Australia energy market is facing unprecedented structural changes that are taking place at a rapid pace," said Sir Michael.

"In particular, the past two years have seen a pronounced decline in residential electricity demand in response to rising prices, and the deployment of rooftop solar photovoltaic systems and energy efficiency savings have more than offset any increase in demand from population growth.”

They’re not good sounds for the chairman to be making.

Still, EnergyAustralia is still seen as a very likely candidate for a spinoff. Analysts were jumping all over news last month that it has acquired two power stations from NSW’s Delta Energy.

“CLP is looking to build a critical mass operation in Australia that can be presented as a viable standalone entity and [spun off separately in the stock market] at some stage," said Sanford C Bernstein senior analyst Michael Parker. "The deal would help tidy up its portfolio."

But CLP doesn’t have to work to the short-term focus of investment banks and, indeed, the business press.

Westpac Banking Corporation, Lloyds Banking Group

Westpac Banking Group is reportedly keen as mustard to get the core operations of Lloyds’s Australian business.

The Australian Financial Review understands that indicative bids, which were due on Monday, were received from Westpac along with the rest of the big four banks and Macquarie Group.

David Jones, Dick Smith Electronics

As reported yesterday, department store David Jones has come up with a consumer electronics deal with Dick Smith Electronics that Business Spectator’s Stephen Bartholomeusz describes as a “creative solution” for the department store’s issues with revenue from that department.

For those interested in the arrangement, particularly in relation to other players in the industry like JB Hi-Fi (which is putting on a clinic) read Bartholomeusz’s piece. 

But here are the basic details of the deal. Dick Smith will operate concession stores within David Jones. The department store gets a cut of the sales and Dick Smith will underwrite the business to some extent. We just don’t know how much.

Dick Smith’s current owners Anchorage Capital Partners were reportedly looking into offloading the business before the deal with previous owner Woolworths, which includes some profit sharing arrangements, had even been completed.

But they hit that speculation on the head.

UGL, DTZ

UGL chief executive Richard Leupen has opted for the demerger of the company’s engineering business from its DTZ property arm. But he’s also offered investors a reminder that demergers, while attractive, are typically handled over a long time.

Leupen announced yesterday that UGL is aiming to demerge the pair into separately listed companies on the ASX in fiscal 2015. That means we won’t see some action for another 10 months and it could take as long as 22 months.

The DTZ business is largely focussed on the US and Leupen believes the business should be treated as such.

“This business needs to be an American business, it needs to be run in America, it needs to have a focus on the major global corporates,” Leupen said.

Wrapping up

Construction giant Leighton Holdings is reportedly close to securing a deal with private property developer Winten Property Group that could lead to it anchoring Sydney’s next skyscraper.

The Australian reports that the North Sydney skyline has more than $1 billion in skyscrapers in the pipeline. Eye’s up Sydnersiders.

In resources this isn’t so much a deal, but the unwinding of a deal. Newcrest Mining, which is trying to keep costs down, is calling an end to its listing in Toronto because the benefits don’t outweigh the costs at the moment.

And finally in uranium news, Toro Energy has agreed to buy the Lake Maitland uranium project from Canada’s Mega Uranium for 415 million Toro shares.

Based on the closing price on Friday (before the deal was announced) this values the project at $37 million.