BREAKFAST DEALS: Coy on GrainCorp

GrainCorp's suitor ADM won't reveal if or when it will up its offer, while Qantas' Emirates tie-up gets a boost.

GrainCorp’s suitor Archer Daniels Midland is keeping tight lipped over when it’ll make its next move as its target heads towards its AGM on Thursday. Qantas Airway’s alliance with Emirates has received a tacit endorsement from the aviation industry’s largest body as the consumer watchdog prepares to rule on the proposal. Meanwhile, Woolworths has received words of assurance from Masters partner Lowe’s that it’s here to stay, Billabong is doing deals in India as US director Paul Naude searches for investors to take it private and Fairfax Media is finishing a rough year off on a good note.

GrainCorp, Archer Daniels Midland

Everyone’s wondering what US agribusiness giant Archer Daniels Midland will do with GrainCorp’s rejection of its improved $2.8 billion takeover offer. The other important question is when that decision is made.

Business Spectator contacted the Illinois-based ADM with the question of whether it would make a decision on its next move, whatever that is, before the GrainCorp annual general meeting on Thursday next week, where it will be a 19.9 per cent shareholder.

A spokesperson for the company understandably played a straight bat. "We’d have no comment on that,” he said.

The company is going with a statement that was in line with its previous statements on the $2.8 billion bid.

"Our proposal offered more certainty, greater value and immediate realisation of potential future value for GrainCorp shareholders than GrainCorp’s stand-alone plan. We intend to consider all our options with respect to GrainCorp and our 19.9 per cent shareholding.”

Could GrainCorp put the ball back in Alison Watkin’s court before the AGM in six days?

Nineteen days went by between GrainCorp’s rejection of ADM’s $11.75 offer and the suitor coming back with $12.20. That would imply that Thursday’s annual general meeting is a little close for another proposal.

We’ll never know whether the timing of ADM’s improved offer was delayed so it could get the troops in order to snap up another 5 per cent of the GrainCorp register to bring its stake to 19.9 per cent. Even if that was the case, it’s unlikely to have been a significant delay.

Whether ADM moves before the GrainCorp AGM is to some extent irrelevant for Watkins. The suitor’s presence has brought with it a swath of hedge funds that would like to see GrainCorp engaging with ADM at $12.20 a share.

The Australian Financial Review understands that Watkins was in London last week meeting with some of GrainCorp’s new hedge fund investors. Perhaps those meetings have given her the confidence to rebuff ADM’s proposal without offering them due diligence.

As Business Spectator’s Stephen Bartholomeusz pointed out yesterday, there is some disagreement about whether the multiples of recent agribusiness deals should be strictly applied to GrainCorp.

"ADM believes GrainCorp is a much more cyclical company than its northern hemisphere counterparts while GrainCorp, experiencing a bumper grain crop, believes that the growth in its processing activities to the point where they constitute about half its business will muffle any cyclicality,” wrote Bartholomeusz.

For the moment at least, GrainCorp looks pretty confident that it can withstand ADM at $12.20 going into its AGM.

Qantas Airways, Emirates, Virgin Australia

The world’s leading aviation industry group says acquisitions and alliances are driving a return to profitability just days before Australian’s consumer watchdog rules on the proposed 10-year alliance between Qantas Airways the Middle Eastern giant Emirates.

The International Air Transport Association has increased its estimates for combined industry profits for this calendar year to $US6.7 billion ($6.4 billion) from an October forecast of $US4.1 billion. In 2013, that figure is expected to rise to $US8.4 billion.

"In the difficult business environment of the past year, airlines have been seeking to lower costs and improve yields through restructuring,” said IATA chief executive Tony Tyler from the body’s Geneva base.

"Recent alliances and joint ventures have enabled economies of scale as well as offering more choice for passengers.”

The Australian Competition and Consumer Commission is preparing to issue its interim decision on the Qantas-Emirates tie-up on December 20. As this column has previously argued, it mightn’t be the regulator’s final decision on the matter, but the writing will be on the wall.

The announcement is also pertinent to the battle between Qantas boss Alan Joyce and a group of activist investors including his predecessor Geoff Dixon, venture capitalist Mark Carnegie, ad kingpin John Singleton and Leighton Holdings financial officer Peter Gregg.

The activists are unofficially campaigning against Joyce’s strategy, arguing instead for a potential float of the Jetstar business and/or a sale of the Frequent Flyer business.

This news from the IATA comes amid reports that, after failing to establish a super-premium Asian airline, Joyce is pushing an Asia plan B. This is unavoidably a nod to the activists, which are also emphasising Asia. But the Qantas boss has admittedly been busy getting the Emirates deal done, which has been if not directly endorsed by the IATA, encouraged.

Of course the battle between Joyce and Dixon spilled onto Tourism Australia, where the latter holds the chair, and there’s some deals news on that front as well.

Virgin Australia and Tourism Australia announced that they will double their partnership to $12 million over three years, from a $6 million agreement made in May. The announcement comes after Qantas ended its $44 million relationship with Tourism Australia, citing an apparent conflict of interest for Dixon.

Joyce has stated that Qantas will maintain its level of funding to the tourism industry through other avenues in an email with stakeholders. If he makes good on that promise, the net result of the Joyce-Dixon feud will be a net boost in dollars for tourism from the two major airlines.

Woolworths, Lowe’s, Masters

Woolworths has reportedly received word from its joint venture partner on the Masters hardware chain, US giant Lowe’s, that it isn’t going anywhere.

Recent concerns expressed by analysts that have been echoed by the press about the cost of the Masters rollout against the Wesfarmers powerhouse Bunnings have put focus on whether Lowe’s might sell its 33 per cent stake to Woolworths at the end of next year, which it has the right to do under certain circumstances.

The Australian reports that this speculation has prompted Lowe’s chief customer officer Greg Bridgeford write to Woolworths boss Grant O’Brien to assure him that his American partners are happy with the way Masters is going.

"The Australian market has proven to be as attractive and vibrant as you described when we first met,” Bridgeford wrote, according to the newspaper.

"Our stores are performing well and the Masters organisation is top notch. We look forward to a long and strong future together with Woolworths as we redefine home improvement for Australians across the country.”

Billabong International, Arvind Lifestyle Brands

Troubled surfwear company Billabong International is pressing ahead with its new strategy under chief executive Launa Inman, as director Paul Naude tries to get a leveraged buyout together.

Billabong has signed an exclusive distribution deal with India’s Arvind Lifestyle Brands to expand its sales in the emerging economic giant.

The deal gives Billabong access to Arvind’s national network of retail outlets, joining Tommy Hilfiger, Gant, Mossimo and Geoffrey Beene as partners of the Indian retailer.

Billabong has gotten into trouble recently with investors for having a retail store footprint that just isn’t paying its way, partially because they sell too many brands.

This is part of Inman’s strategy to press into expanding markets with retail sites that are operated by local players, taking the burden off Billabong.

In the meantime, Naude is four weeks into a six week grace period offered by Billabong to try to cobble together enough investors to take Billabong private.

Billabong shares jumped on the Naude news and have actually improved since then. Although at 94 cents, they’re still well short of the $1.45 level that former suitors TPG Capital and Bain Capital initially started talking about.

While we’re talking retail, The Australian has secured an interview with Premier Investments chief executive Mark McInnes, who says the Solomon Lew company is getting close to making its much anticipated acquisition.

In iron ore mining, Fortescue Metals Group has added Lazard Australia as an adviser for its rail and port asset sale proposal, according to The Australian Financial Review. Macquarie Group is also helping Fortescue out in its efforts to cut its debt.

Wrapping up

Brazilian iron ore giant Vale is set to pay Aquila Resources $150 million for a 24.5 per cent stake in the Belvedere coal project, following an independent valuation.

Elsewhere, Computer Sciences Corporation has collected $US73.5 million ($69.4 million) for offloading its Australian IT recruitment arm Paxus to South Africa’s Adcorp Holdings.

And finally, Fairfax Media shares surged 11 per cent yesterday, following a report from Commonwealth Bank of Australia that valued its real estate assets at $404 million.

The share price was put down to short covering, though if short sellers were covering their positions on the basis of the underlying value of Fairfax assets, the share price would be a lot higher.

It’s a welcome end to a turbulent year for Fairfax, which has included a number of jousts between major shareholder Gina Rinehart and chairman Roger Corbett over the company’s strategy, along with prods from institutions for asset sales.