BREAKFAST DEALS: Chook raffle

The ACCC is set to watch closely as dominant chicken producer Inghams is offered for sale, while confidence in Nathan Tinkler's Whitehaven deal falters.

Inghams Enterprises

Domestic competition concerns could effectively push Australian chicken producer Inghams Enterprises into the hands of private equity or foreign companies.

The business is expected to fetch about $1.6 billion, maybe more. Investec is running the show.

The 81-year old Ingham family patriarch Bob Ingham put the famous brand up for sale yesterday.

About three-quarters of the Australian chicken market is controlled by Inghams and main rival Baiada, also privately owned. Once you factor in the equally concentrated nature of the supermarket industry, you can see how the Australian Competition and Consumer Commission might have a problem with Inghams and Baiada joining forces.

The next most logical union would be between the supermarkets and Inghams and, well, forget that.

So who would be interested? Chinese food players are the obvious first choice given their recent involvement in the grains and sugar markets in particular. We’re thinking Bright Foods as a prime example.

Other Asian players that are being kicked around in media reports are Tegel Foods, the New Zealand player recently relaunched from private equity firm TPG Capital, Brazil’s beef company JBS and its own rival Marfig Alimentos. Private equity firms like Paine & Partners and Kohlberg Kravis Roberts have also been touted.

Inghams is a good business and shouldn’t be rushed into a price that’s not reasonable.

For that reason, given the state of equity markets and concerns in debt markets, don’t be surprised if this deal gets put on hold for a while if volatility creeps back in.

Back in early June, pallet company Brambles drew praise from analysts and investors for refusing to sell its impressive US document management business Recall after a long sales process. The price simply wasn’t good enough due to the conditions.

Whitehaven Coal, Nathan Tinkler

Given the discount that Whitehaven Coal shares are trading at to Nathan Tinkler’s indicative conditional offer, the market remains sceptical that the coal baron can pull off a proper bid.

Whitehaven shares did shoot up 18 per cent to $4.07, but that’s still well short of the $5.20 that Tinkler has proposed.

It means the market thinks the former electrician will struggle to put together a bid, but it also makes it more difficult for Tinkler to fill that extra 16.7 per cent equity gap without further borrowings.

The play that faces current investors that have the option of spinning their shares into the Tinkler vehicle is this. They can hold out to sell at $5.20, with the risk that the deal falls apart and the share price tumbles back to $3.45 (lower if the coal price keeps falling). Or they can pass that opportunity up and spin their holdings without return into the private Whitehaven that the market only values at $3.45.

Both scenarios risk either a shareholder making a terrible call or the deal falling over entirely. Hence, the share price is trading at a big discount.

Seven West Media

New Seven West Media chief executive Don Voelte has made sure to put a line between the company’s equity raising and its spending intentions.

When asked about the pending NRL rights deal, Voelte said Seven Network was still interested in securing a deal "at the right price,” adding that it wouldn’t be funded out of the $440 million capital raising.

As such, the raising cuts Seven West’s debt to $1.4 billion from $1.9 billion, or 2.7 times earnings before interest, tax, depreciation and amortisation – something that analysts are much more comfortable with.

Investors will pick up an extra share for every two they own for the price of $1.32 a share. That’s an 18.5 per cent discount to the last trading price and a 13.2 per cent discount on the theoretical ex-rights price.

That’s a skinnier discount that Ten Network could command last month, when it announced a $200 million raising at a 20.3 per cent discount and 15.6 per cent ex-rights markdown.

As Business Spectator’s Stephen Bartholomeusz points out, the news that private equity holding Kohlberg Kravis Roberts intends to participate, but might have to wait for the retail offer, implies that they had no official warning that Seven was moving.

Westpac Banking Corporation

Speaking of fund raising, Westpac Banking Corporation is pushing ahead with a debt issue to the market – a $500 million subordinated note.

To known as Westpac Subordinated Notes, the securities will be offered at $100 a pop, with the bank reserving the right to raise more funds.

Westpac's group treasurer, Curt Zuber, said the issue will "further strengthen Westpac's total capital position".

The returns will be 2.75 per cent to 2.95 per cent above the bank bill rate. Based on current valuations, the notes will come in at around 6.3 per cent and 6.5 per cent.

The fixed maturity loans will finished up on August 23, 2022, although Westpac has the option or renewal in 2017.

Gunns

Timber company Gunns has continued its asset sales program as part of a long march towards fixing its balance sheet.

Gunns has offloaded its Victorian woodchipping export plant to Australian Bluegum Plantations, which is actually owned by a US company called Global Forest Partners through a Cayman Island player named AIF Properties.

The sale follows the decision to jettison the Heyfield native forest sawmill in Victoria on May 14, a process that received a legal challenge.

It’s all part of the timber company’s quest to recapitalise, after Singapore’s Richard Chandler walked away from a potential deal in March.

Gunns shares have been in a prolonged suspension at 16 cents a pop for four months as shareholders wait for the dream to be realised.

Wrapping up

Having mentioned the supermarkets in our lead this morning, The Australian Financial Review reports that Woolworths hosted” buy-and-sell-side analysts” late last week over Dick Smith Electronics, as it tries to secure a buyer six months after putting the business up for sale.

And touching base again with St Barbara, a strong production report has done nothing to turn around the company’s share price that’s been smashed after the announcement of the Allied Gold merger.

Strictly speaking, it wasn’t a production report but a production summary. Nonetheless the numbers were good, but the share price didn’t move really, having dropped almost 40 per cent since the Allied deal was declared. Keep digging guys, fast.

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