BREAKFAST DEALS: Buffett to the rescue
Warren Buffett looks set to solve Suncorp's earthquake troubles, while Fairfax is declared the world's best bargain of its kind.
Suncorp Group, Berkshire Hathaway, Warren Buffett
Suncorp Group shares comfortably outperformed the broader market yesterday amid speculation that the insurer has pulled off a sensational deal with the world’s most famous investor, Warren Buffett.
According to industry magazine The Insurance Insider, Berkshire Hathaway has agreed to write the whole limit of Suncorp’s New Zealand catastrophe cover, thought to be in the order of $US200 million.
The Australian insurer was expected to struggle to recover from the New Zealand earthquakes, having dramatically increased the payout estimates just weeks after the last renewal.
According to media reports, Suncorp has declined to address the speculation that Buffett’s famous investment firm is involved, merely stating that the agreement is still being finalised.
Buffett’s endorsement in any context is hardly foolproof. But his penchant for dealing with companies that have good managers and letting them do the rest would make for a terrific endorsement for Suncorp.
Speaking of Buffett, the Oracle of Omaha might have something to say about recent talk surrounding embattled publisher Fairfax Media.
Speculation has moved on from the board’s growing recognition that it might have to writedown the company’s famous mastheads to the possibility of a buyout and break-up.
According to Bloomberg, Fairfax is now the cheapest media company measured by traditional valuations in the world – a distinction of a kind. The company is trading at a 60 per cent discount to its book value, according to analysts from the Royal Bank of Scotland.
To put that into context, the media company’s 66 per cent stake in New Zealand advertising website Trade Me is worth around $NZ1 billion ($790 million). Fairfax’s total market cap is $1.39 billion.
As such, talk is now moving to the idea of someone buying the company out and splitting it up. That could bring the radio assets that John Singleton so desperately wants back into play. Fairfax unsuccessfully tried to sell them last year for something upwards of $300 million.
The reason why Buffett might have an opinion on a Fairfax break-up is Berkshire Hathaway recently paid $US142 million ($144.1 million) for most of Media General Inc’s community newspapers in the US. It’s Buffett’s belief that rural newspapers will survive the advertising downturn better than their metro rivals that can no longer cover news as extensively.
While the world’s second richest man might favour the rural assets, the world’s richest woman Gina Rinehart will probably have something different to say if a Fairfax buyer pops up.
Rinehart’s push for a board seat – well, two board seats – with her 13 per cent stake is widely seen as a means of getting a foothold in one of Australia’s most influential media companies, to then use it for influence.
If that is in fact the case for Rinehart and a buyer emerges down the track, it’s easy to imagine the mining billionaire jostling for the assets she most covets.
Would that include the rural assets, the most profitable publications in the Fairfax tent? As the share price slide since Rinehart bought in has implied, she’s probably not in this for the money.
Brambles, Ten Network
Pallet company Brambles has raised $333 million from institutional investors, but only about four-fifths of the register took up entitlements.
Big Australian corporates, particularly the media sector, will be watching the market’s appetite closely with a number tipped to raise capital of their own in coming weeks and months.
Brambles will seek another $115 million from retail shareholders in the wake of the failed attempt to sell US document management business Recall.
Ten Network is also in the market for capital, but Merrill Lynch and UBS have downgraded the media stock since announcing as much.
The television network has the advantage of boasting a register that’s packed with billionaires willing to take part in the raising.
Santos, ConocoPhillips, SK S&E
Santos has once again been named as a likely takeover target as analysts push for industry consolidation in Australia’s emerging LNG sector. Actually, it’s been named twice.
According to The Australian, JP Morgan and Deutsche Bank have both pointed to the $11 billion oil and gas company as one likely to receive attention as big energy players gear up to sell LNG to Asia at healthy prices while North America grapples with a gas glut.
Just yesterday, Santos and joint venture partner ConocoPhillips agreed to sell a minority stake in the Caldita and Barossa offshore gas fields to SK E&S, which is an unlisted arm of South Korea’s SK Group.
Santos said the $US520 million deal for a 37.5 per cent interest in the two fields would allow it to bring the gas to market quicker. As a result, Santos’ stake will fall from 40 per cent to 25 per cent, while ConocoPhillips will be reduced from 60 per cent to 37.5 per cent.
Following the completion of the $US260 million first well, which SK E&S will pay for, of a three well appraisal, the South Koreans will have the option of increasing their stake in the fields to 49.5 per cent for an extra $US60 million. The proceeds would be split 60:40 between Conoco and Santos, as per the original structure.
Glencore International, Viterra, GrainCorp
The consumer watchdog has decided not to impose any conditions at a local level on the takeover of Canadian grains company Viterra by commodity trading giant Glencore International.
Quite what it would have to say about a takeover of GrainCorp, still an independent, is less clear.
The Australian Competition and Consumer Commission said after a two-month investigation the concerns for the grains market, particularly in South Australia, had ebbed.
It’s expected that the grains industry consolidation still has a way to run and this has put Australian’s GrainCorp front and centre as a takeover target.
According to The Australian, senior RBS Morgans analyst Belinda Moore has nominated GrainCorp as an ideal candidate, adding that it could get up to $12.85 a share. The stock finished yesterday’s session at $9.40.
Echo Entertainment, Crown, James Packer
Billionaire James Packer has hit a rather predictable snag in his quest to unseat Echo Entertainment chairman John Story and replace him with former Victorian premier Jeff Kennett – major shareholder Perpetual isn’t going for it.
Speaking to The Australian Financial Review, Perpetual head of equities Matt Williams wasn’t swayed by Packer, whom he met last week over the Echo situation.
"Perpetual does not support Crown’s move to appoint a director to Echo,” Williams said, according to the newspaper. "Ten per cent is nowhere near enough to have a director on the board of a major competitor.”
That’s not exactly a glowing endorsement of Story’s tenure. But as Echo’s second largest shareholder it does dent Packer’s plans to get Kennett on the board – at least on the first try.
Hong Kong’s CLP Holdings has apparently appointed Bank of America-Merrill Lynch, Deutsche Bank and UBS as joint lead managers of its proposed float of a minority stake in Australian energy retailer TRUenergy. CLP Holdings, advised by Rothschild, locked the investment banks in earlier this week, according to media reports.
Meanwhile, ASX-listed Ausdrill is tipped to put about $150 million up for the privately owned mining services firm Bect Tractor Parts. The Australian Financial Review reports the figure, which is bang on what Ausdrill secured from the Commonwealth Bank facility in April.
Speaking of mining and funding, iron ore miner Fortescue Metals Group has secured $US490 million ($494 million) in senior debt facilities for the expansion of its operations in Western Australia.
And finally, while Etihad Airways is aggressively moving up the Virgin Australia register, chief executive James Hogan has denied the Middle Eastern carrier wants to take the company over entirely.