Breakfast Deals: Constructive play

It's been a while since deal watchers have been treated to something big in Australia's engineering sector, but there are hopes Jacobs Engineering's major tilt at Sinclair Knight Merz will stoke interest in other domestic consultancies with a similar international presence.  Elsewhere, The Trust Company backs Perpetual, while Pepper Australia tries to woo RHG with a sweetened offer. And which of its five potential takeover options will Challenger choose?

Jacobs Engineering, Sinclair Knight Merz

Australian engineering firms will be back on international radars this morning, after New York-listed Jacobs Engineering launched a $1.3 billion bid for Australia’s Sinclair Knight Merz.

The all-cash offer brings to an end a review process at SKM that began two years ago, when the privately-owned consultancy tapped Caliburn – now Greenhill Caliburn – to advise on growth options.

It also lays to rest speculation SKM would be part of a mega-merger between AMEC and WorleyParsons in the UK and Technip of France. 

Under the Jacobs deal – touted as a merger – SKM would be engulfed by the US company in an apparent push to grow its presence in Australia and elsewhere. With little geographic overlap, Jackson will be hoping to use SKM's existing network of consulting, planning, engineering, architecture and construction management specialists to compliment and grow its own operations.

However, as Matthew Stevens points out in the Australian Financial Review, SKM's 660 partners each stand to make about $12 million from the sale. That could be seen by some as a nice retirement bonus, potentially upsetting the buyer's plan to retain the target's skills base.

For now, though, SKM's board of directors have unanimously endorsed the deal, pending independent analysis and regulatory and shareholder approvals.

Don't be surprised if the deal puts the spotlight on other Australian engineering consultancies with a global presence, including Aurecon, GHD and SMEC.

Equity Trustees, IOOF, Perpetual, The Trust Company

Meanwhile, Perpetual has come out on top the three-company battle for control of The Trust Company.

In the latest twist in the long-running takeover, Trust Co's board recommended Perpetual's sweetened $247 million offer over last week's lesser bid from IOOF Holdings.

Perpetual is offering 0.182 of its own shares for each Trust Co share, with a cash option worth up to $110 million. That's $7.18 per Trust share, based on Perpetual's closing price on Friday.

Perpetual's bid is worth about 24 per cent more than its original bid. It is also more valuable than IOOF's offer of $6.47-a-share and Equity Trustees' tilt, worth $6.33 a share.

Trust Co directors expressed unanimous support for the Perpetual offer – in the absence of a superior proposal and subject to an independent experts' report – entering into a revised scheme of implementation agreement with the suitor. 

A scheme meeting of Trust Co shareholders is set to be held in early November to vote on the proposal, with a target implementation date of November 21. The Australian Competition and Consumer Commission will also rule on Perpetual's bid on September 19.

No word yet from IOOF or Equity Trustees, but with multiples approaching a whopping 20 times earnings, there's a sense that bidders are beginning to test their limits.

Cadence Capital, Pepper Australia, Resimac, RHG

Trust Co isn't the only company to get a boost from a bidding war. The takeover battle for RHG, formerly RAMS, is firing up with a fresh $158 million offer from Pepper Australia and Cadence Capital.

The target's board is assessing the sweetened bid, which increases the cash component of the offer to 36 cents a share, from 35 cents. The scrip component of the bid, worth one share in Cadence for every 10 in RHG, remains the same.

In total, the duo is offering 50.8 cents a share (based on Cadence's closing price on Friday), compared with a bid from Resimac's worth 49.5 cents cash.

Of course, the value of Pepper's offer depends on how Cadence trades in the coming months. And the pair's initial tilt was rebuffed partly over concerns about the liquidity of Cadence's shares.

For its part, Cadence has addressed fears about the scrip component of the offer by promising a buyback program should its stock fall materially below net tangible asset value.

Resimac, which has already entered into a scheme of arrangement with RHG, has three days to respond with a counter offer. 

Challenger, Access Capital Advisers

Challenger is said to be in takeover talks with five investment groups as the annuities giant aims to grow its funds management.

One of the parties is understood to be Access Capital Advisers, which offers exposure to infrastructure and alternative assets, according to the Australian Financial Review.

A Challenger spokesperson tells the newspaper the company’s Fidante Partners business is holding discussions with fund managers across various asset classes.

“Fidante Partners is in talks with five teams regarding the formation of new boutique businesses. Some of these are in infrastructure,” he said.

“None of them are probable, being at an early stage, and our preference is for teams with a very strong track record.”

Wrapping up

After keeping a low profile in the lead-up to the election, Archer Daniels Midland has now begun lobbying the Coalition about the merits of its $3 billion bid for GrainCorp.

US-based ADM has sent grains president Ian Pinner back to Australia to meet with growers groups and the incoming government, before it resubmits its buyout proposal to the Foreign Investment Review Board, the Australian Financial Review reports.

Elsewhere, Etihad appears to be lifting its stake in Virgin Australia, after a flurry of buying by the Middle Eastern airline's broker, Patersons Securities.

Patersons did 80 per cent of Virgin Australia trades on Monday, including one line of 15 million shares or a 0.5 per cent stake in the company worth $6.5 million, the Australian Financial Review reports, citing Bloomberg data.

Etihad, which recently increased its Virgin holdings to 12.3 per cent, from 10.6 per cent, has been buying the Australian airline's shares since FIRB said it could own up to 19.9 per cent.

Finally, Cash Converters International wants to raise up to $60 million to help pay down debt and possibly to pursue investment opportunities.

The unsecured notes, issued in denominations of $1,000 starting at $50,000, will pay 7.95 per cent per annum with an indicative term of five years.

FIIG Securities is running the sale.