BREAKFAST DEALS: Chinese appraisal

Van Diemen's Land Company catches the eye of a Chinese wealth fund, while Nine Entertainment awaits its fate.

The debate about what conditions Chinese companies must meet before acquiring certain Australian assets could shift to Tasmania, according to a Fairfax report. This week could prove to be a big one for Nine Entertainment and Alesco Corporation, with their deals reaching pivot points. Meanwhile, Fortescue Metals Group is reportedly looking at a minority stake sale, while investment banker Mark Carnegie thinks about lending a hand to the embattled Nathan Tinkler.

Van Diemen’s Land Company, China Investment Corporation

We can expect to go another round in the debate about foreign investment in Australia, specifically Chinese investment. This time, the arena is a dairy farm.

Fairfax reports that the supersized sovereign wealth fund, China Investment Corporation, is in talks to buy Australia’s largest dairying operation, the Van Diemen’s Land Company. There are no chocolates for anyone who can guess where it’s based.

The report says that CIC is understood to have conducted "preliminary consultations” with the Foreign Investment Review Board before making a formal offer for VDLC.

The Tasmanian company is now majority-owned by an arm of New Zealand Plymouth District Council. If a firm bid does materialise, the fact that ownership would be transferring from one foreign operator to another will not be lost on some onlookers.

The tussle over the destiny of Cubbie Station, viewed mainly through the prism of the Coalition’s internal struggles, could easily flare up again.

Nine Entertainment, CVC Asia Pacific, Goldman Sachs, Apollo Global Management, Oaktree Capital

This week could prove to be the pivotal moment when the fate of Nine Entertainment is ultimately decided.

Media reports point to meetings that will take place over the next two days with Nine’s owner CVC Asia Pacific and mezzanine debt lender Goldman Sachs on the one side and the US hedge fund lenders Apollo Global Management and Oaktree Capital on the other.

The Australian Financial Review reports that the hedge funds are set to ask a series of questions about the failed attempts to sell Nine to interested parties.

You might remember a chorus line of names that found their way into the press from Telstra Corporation to Hollywood tycoon Harry Sloan. But none of it materialised.

Apollo and Oaktree are smart to be asking why it is that CVC couldn’t find a compelling price from just about anyone else in the world.

The debt held over Nine will shrink to $2.2 billion once the sale of ACP Magazines goes through. The valuation that Goldman has sought to put on Nine is reported to be $2.8 billion, while the hedge funds are looking closer to $2.2 billion.

The lower the agreed valuation, the better the chance CVC is wiped out entirely and Goldman has a lower role to play in the final structure. The higher the valuation, the better the chances for them both.

Of course, there could be no agreement at all, and Nine would be thrown to the unenviable stratosphere of receivership.

DuluxGroup, Alesco Corporation

This is also a big week for less titanic but nonetheless entertaining battle between DuluxGroup and Alesco Corporation.

Last week, at long last, Dulux won its coveted majority of the garage door-making target with its $210 million takeover offer of $2.05 cash and up to 42 cents of fully-franked dividends per share.

The offer goes unconditional on October 1, by which point the Alesco board has to throw its support behind the paint company’s offer or else the franking credit deal dries up.

The dynamics were not lost on Dulux chief executive Patrick Houlihan last week.

"Alesco's shareholders have spoken,” said Houlihan.

"Shareholders holding the majority of Alesco's shares have shown their clear support for the Dulux offer.

"If the Alesco board recommends our offer before October 1, the parties can reach agreement to deliver the additional franking credits to Alesco shareholders.”

If the board throws its support behind the offer, the acceptances are likely to jump much closer to 90 per cent, where Dulux would compulsorily acquire the rest.

Fortescue Metals Group

Fresh from its triumphant new debt deal, Fortescue Metals Group is reportedly looking at a minority stake deal that would deliver it $US2 billion.

According to The Australian Financial Review, the company of Andrew ‘Twiggy’ Forrest is considering a stake sale in its Chichester iron ore site.

The newspaper says a spokesperson for the company declined to comment on the story, pointing the writer back to Fortescue’s original statement about how "a range of parties” have expressed interest in certain assets that would see them partnering Fortescue.

Of all the options currently at Fortescue’s disposal to reduce its debt, which currently rivals its market cap, selling a minority stake in Chichester would be amongst the most appealing.

Fortescue’s rail assets would be a highly sought after prize for big international investors, but it would be a strategic blow to the iron ore miner that simply isn’t necessary.

The market has been agitating for a capital raising over the last few weeks, but you can kiss that idea goodbye. Fortescue has fortified itself well enough with the $US4.5 billion debt facility to avoid a highly dilutive raising that would irk Forrest more than somewhat.

Billabong International, TPG Capital

It’s been brought to the attention of this columnist that on more than one occasion, the decision by Billabong International to reject a takeover proposal by TPG Capital offer of $3.30 back in February has been cast in a particular light.

Word got out at the time that Billabong founder and major shareholder Gordon Merchant was not willing to sell the company for less than $4 a share.

The company is now talking with TPG about a proposal at $1.45 a share.

While Merchant commands an influence over the company beyond his 16 per cent stake, the record must be made clear. The board recommended against engaging with TPG at $3.30 unanimously.

Wrapping up

Investment banker and former investor in this website, Mark Carnegie, is apparently considering a loan to mining tycoon Nathan Tinkler to settle his battle with property firm Mirvac.

According to The Australian Financial Review, no deal has been signed, but an agreement would allow Tinkler to avoid disclosing the details at his vehicles Ocean Street Holdings and Buildev Group.

ANZ Banking Group has offloaded its wholesale mortgage distribution business Origin Mortgage Management Services to a mortgage funding company from Sydney called Columbus Capital.

The bank did not disclose what it got for the unit and comes on the back of ANZ’s sale of its stake in Visa for an after tax profit of $224 million.

And finally, the AFR understands that Mayne Pharma is thinking about a capital raising of about $40 million, with Credit Suisse and UBS lending a hand.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles