BREAKFAST DEALS: Carnegie power play

The Brickworks AGM will be a little more interesting today, with venture capitalist Mark Carnegie singling out Robert Millner's cross-shareholding structure with Soul Patts as something he's taking a look at. The Future Fund chairman David Gonski, who looks to have landed Australian Infrastructure Fund's airport assets, is reportedly one of Carnegie's backers. Elsewhere, Insurance Australia Group is talking in the UK, Bendigo and Adelaide Bank is helping Southern Finance out of the Banksia debentures stink and the mind bending Dulux-Alesco takeover battle is finally coming to a close.

Mark Carnegie, Robert Millner, Washington H Soul Pattinson, Brickworks

Venture capitalist Mark Carnegie will try where Sir Ron Brierly, Gary Weiss and Perpetual have failed. He's having a crack at the cross-ownership structure insulating investor Robert Millner at Washington H Soul Pattison and Brickworks.

News broke yesterday that Carnegie has picked up 1 per cent of Perpetual's 12.6 per cent stake in Brickworks and 11.9 per cent share of Soul Patts, with an option to pick up another 4 per cent.

The timing feels pretty deliberate. Brickworks holds its annual general meeting today in Sydney.

The problem that Perpetual and others have faced is the 44 per cent that Brickworks and Soul Patts own in each other.

Last year, Perpetual fund manager Matt Williams tried to get corporate and financial advisor Robert Fraser appointed to the Soul Patts board, but the Millner structure dealt with that move pretty swiftly.

The argument is that arrangement between the companies locks up value, some believe in the billions of dollars. It's further suggested that the fact that many directors sit on the boards of both Brickworks and Soul Patts reduces their independence and makes for poor corporate governance.

This debate once reared its head in relation to the attempted sale of New Hope Coal, also part of the Millner web.

After discussions with Chinese and Indian suitors an offer simply couldn't be done. Since then coal prices have tanked and many deals have been shelved – most famously Nathan Tinkler's privatisation pitch for Whitehaven Coal.

Carnegie has a bit of room on the charts to work with. Soul Patts has underperformed the ASX this calendar year by 15.7 per cent, while Brickworks is almost 6 per cent short.

Millner has a formidable hold on the companies and will not give his position up lightly.

The Australian Financial Review reports that Carnegie could have some impressive people in his corner. The newspaper understands that investors in his Companion Fund include Future Fund chairman David Gonski, lawyer Danny Gilbert and adman John Singleton.

The latter is also widely reported to be involved with Carnegie on a similar activist push at Qantas Airways.

Fairfax reports that the group of activists, which also includes former Qantas boss Geoff Dixon and Leighton Holdings chief financial officer Peter Gregg, will meet with crucial unions for the second time later this week to put forward their alternative Qantas strategy.

Carnegie doesn't appear to be winding down for Christmas much.

Future Fund, Australian Infrastructure Fund

The Future Fund chairman David Gonski looks to have the airport assets of the Australian Infrastructure Fund wrapped up.

The two firms announced yesterday that they've come to a binding, $2 billion agreement that will see AIX shareholders receive $2.95-$2.98 per security from the Fund in "late April”, while AIX will return 24-25 cents and some franking credits in the second half of calendar 2013 as the residuals on the company's books are wound up.

Before any of that, AIX shareholders will also receive a distribution of around 5.5 cents in February.

The fund's $2 billion price for the suite of assets is almost 14 times enterprise value to EBITDA, which should be enough to hold off any rival proposals.

As Business Spectator's Stephen Bartholomeusz pointed out yesterday, that's a 10 per cent premium to stated asset value, an effective 22 per cent premium to the previous trading price (The Future Fund's domestic take-off, November 27).

The fund is picking up stakes in the airports of Perth, Melbourne, Launceston, minor airports in Queensland and the Northern Territory and Statewide Roads. There's also a 40 per cent stake in Hochtief Airport Capital, which owns stakes on a number of European runways as well as a small share of Sydney airport.

This is a classic sovereign wealth fund play, particularly an Australian one. They're monopolies by design and government regulated; and the domestic assets have the added advantage of being unaffected by the troublesome Australian dollar.

The one potential problem is for the pre-emptive rights of other investors in the airports that could curb the size of the transaction.

But, as Bartholomeusz also points out in his piece, you'd assume that the Fund's due diligence would have given it a strong indication that the scenario is unlikely.

Remember, the Westpac-owned Hastings Funds Management manages AIX. If this deal fell over, or was significantly reduced in scale, there would be a lot of important red faces.

Insurance Australia Group

Insurance Australia Group has reportedly confirmed that it is in "preliminary discussions” with a number of companies over its UK division.

The Australian Financial Review carries the story. The report also comes as The Insurance Insider reveals that Duke Street's Edmund Truell, who has been on the hunt for financial services assets for the last six months, is the preferred bidder for IAG's motor underwriting arm Equity Red Star.

Questions have been centring on what IAG boss Mike Wilkins might do with the insurer's UK arm for the good part of six months, with some pointing to Australia's own QBE Insurance as a possible buyer. This idea was quickly dropped.

IAG bought into the UK market in 2006 through Equity Insurance Group for a total of $1.4 billion.

It's been estimated that the remaining value left in the UK business probably isn't much more than $600 million.

As National Australia Bank boss Cameron Clyne has found, the UK market is a dire one for sellers.

Bendigo and Adelaide Bank, Southern Finance

The regional non-bank lending sector has quickly been thrust back into the headlines thanks to the move by traditional regional lender Bendigo and Adelaide Bank to acquire Southern Finance.

The target's customers have had their accounts frozen while the negotiations take place. While this would be no doubt frustrating, the sector has been under increasing pressure since the $660 million collapse of Banksia Group. At the end of the day, the account holders will probably consider themselves lucky.

Southern has $290 million on its books, which fund a lending business for equipment finance and commercial property. There's also a financial planning arm.

Bendigo confirmed yesterday that it has entered a non-binding heads of agreement to acquire Southern Finance's assets, but a price was not disclosed. The pair are hoping to have something finalised by December 3.

"We have carefully considered all options and believe the time is right to pursue the proposed transaction with Bendigo and Adelaide Bank,” Southern chief executive Ashley King said.

The Australian Securities and Investments Commission will be watching this deal very closely. In the wake of the Banksia collapse, the corporate watchdog set up a taskforce to regulate the debenture industry.

Wrapping up

The DuluxGroup takeover of Alesco Corporation, undoubtedly the most irritating deal of 2012, is finally expected to come officially to an end.

Dulux has secured 85.8 per cent of the target and informed the garage door-making company last night that it intends to make its offer unconditional.

That's expected to tilt the Alesco board in favour of the 27 cents a share fully franked dividend as part of the $210 million deal.

The market whacked web hosting company Melbourne IT yesterday after it revealed a restructure and possible asset sales following a "disappointing” fall in earnings. The share price tanked 11 per cent to $1.55.

Meanwhile, gourmet Australian cheesemaker Jindi has sold itself to a French dairy behemoth for something around $20 million.

And finally, accounting software company MYOB did opt for a $125 million listed note offer, as reported yesterday morning.