Breakfast Deals: Clough prospects

Once financially stretched South African engineer Murray & Roberts has gone from putting its stake in Western Australia’s Clough up for sale to offering to buy minority shareholders out. Elsewhere Archer Daniels Midland continues to feel the heat from political opponents to its GrainCorp push, King & Wood Mallesons lawyers have found a way to the UK after all and BHP Billiton has called off the Gregory Crinum coalmine sale.

Clough, Murray & Roberts

South African engineering group Murray & Roberts has finally decided to take out the rest of Australia’s Clough with an offer valuing the whole company at $1.1 billion.

Murray & Roberts, which first bought into Clough back in 2003 and commands 61.6 per cent of the register, has put a $1.46 a share offer on the table.

Shareholders will receive a $1.32 cash payment and a 14 cents fully franked dividend. The dividend will be entirely funded by Clough’s $364 million cash reserves.

Those reserves are largely made up of the winnings from Clough’s sale of its marine construction business to Malaysia’s SapuraCrest two years ago and its 36 per cent stake in engineering group Forge in March this year.

At the time of the Forge sale it was known that Clough was looking at a number of potential acquisitions.

Now Murray & Roberts has a 30.9 per cent premium to the previous closing price on the table that’s conditional on due diligence, a favourable independent review and boardroom approval at the suitor.

If that all falls into place, the target’s independent directors will recommend minority shareholders accept the offer.

The stock is hovering at $1.43, a mere 2.1 per cent discount on the offer price. This shows the market is pretty sure the deal will go through, but certain a higher offer won’t be forthcoming.

If the deal falls apart because of the independent expert’s report, so be it. But there is no chance of Clough ending up somewhere else.

It’s not just the commanding stake that Murray & Roberts has. It’s the fact that the once financially strained South African construction company was looking to offload its stake in Clough last year.

If a compelling offer to jettison the stake had emerged, they would have known about it. Now thanks to the restructuring efforts of Murray & Roberts boss Henry Laas, it obviously wants Clough in-house.

And this isn’t to take advantage of a share slump – not really, anyway.

A look at Clough’s trading chart over the last ten years shows the stock couldn’t get over the $1 mark until the Federal Reserve-charged global share market rally in later 2012/early 2013.

Zoom in closer for a look at the last six months and the share price peaked around $1.40 and then came sliding back to between $1.05 and $1.20.

We’ll wait until the independent expert comes back with its report, but Clough has never been a shooting star stock. With the Western Australian economy likely to run into a cooling period of sorts as the mining construction boom comes to an end, this will probably shape up as a good opportunity for Clough’s minority shareholders to cash out.

GrainCorp, Archer Daniels Midland

As anticipated, the rhetoric against the proposed $3 billion-plus takeover of GrainCorp by US giant Archer Daniels Midland is growing stronger as the election draws closer and closer.

The Australian Financial Review reports that ADM executives have indicated in a letter to the committee examining the GrainCorp bid that they will not be attending a hearing next week for legal reasons. Instead, the American suitor has requested further queries be put to it in writing.

For Liberal Senator Bill Heffernan, the chairman of the committee and outspoken opponent of the proposal, that was all he needed.

“The letter speaks for itself in the further consolidation in the market. It provides first class evidence that the Australian Competition and Consumer Commission hadn’t given consideration to the market impact given ADM was already 80 per cent owned by Toepfer,” Heffernan said, according to the AFR.

Meanwhile, FarmOnline has published an op ed by Nationals Senator Fiona Nash where she calls agriculture minister Joel Fitzgibbon, who has given cautious hints of support for the deal, “clueless”.

Fitzgibbon told a conference on Tuesday: “Caution is needed in managing foreign investment – our national interest is first and foremost. We should embrace foreign investment, not fear it.”

Nash responded: “If the minister thinks that the takeover of GrainCorp by ADM is an instance where we need foreign investment then he clearly doesn’t have a clue, made all the more evident by his own admission that he hasn’t spoken to ADM – and I doubt he’s spoken at length to growers either.”

King & Wood Mallesons

Australian-Chinese law firm King & Wood Mallesons has revealed an international merger deal that will establish one of the world’s 25 largest law firms, with revenue totalling a staggering $1.1 billion.

King & Wood Mallesons has agreed to merge with UK firm SJ Berwin. According to Stuart Fuller, global managing partner for the Australian-Chinese firm, the deal received strong support from partners across the firms that cover China, Hong Kong, Australia and London.

SJ Berwin senior partner Stephen Kon will become deputy chairman of the combined firm. Wang Junfeng, who founded King & Wood in 1993, will stay on as chairman based in Beijing.

This probably reflects the fact that King & Wood speaks for a larger slice of the combined business, not to mention expectations of growing opportunities on the Asian side of the combined business.

The merger comes just 16 months after Mallesons made history by forging a merger with King & Wood to make the largest law firm across Asia.

Traditionally, Australian law firms have sought tie-ups with cousins in the UK or the US. Indeed, Mallesons attempted to get deals done with UK firms such as Clifford Chance and Linklaters, before opting for a deal with King & Wood that was considered somewhat of a game changer.

In the end, Mallesons got its ticket into the UK after all, and are now part of a global firm that looks truly formidable.

Wrapping up

Mining giant BHP Billiton has cancelled the sale of its Gregory Crinum coal mine near Emerald, Queensland, after failing to find a buyer. It owns the asset with Japan’s Mitsubishi.

Meanwhile, fellow resources major Woodside Petroleum may have to put in more cash to get a piece of the $US1.25 billion ($1.39 billion) Israeli Leviathan gas project due to proposed changes from partner Noble.

According to Israeli news organisation Haaretz, Noble wants to export gas to Turkey using an offshore pipeline, which would lower the costs.

Hang on – lower costs, yet Woodside would have to pay more? Yes. The profit margins are fatter. Ergo, the project would be worth more.

However, the report was without a source.

In aviation, the consumer watchdog has asked for more information on Air New Zealand’s plan to boost its stake in Virgin Australia to as high as 26 per cent, delaying the decision date indefinitely.

The ACCC was due to hand down its findings this week. No longer.

Elsewhere, APN Property Group is reportedly one of the final players circling the industry property portfolio of Australand Property Group.

The Australian reports that the unit is expected to go for close to $215 million and that South Africa’s Growthpoint, Investec and 360 Capital are also in the mix.

And finally, Anchorage Capital Partners has thrown cold water on the idea that it’s already looking to sell out of Dick Smith Electronics.