BREAKFAST DEALS: Crown king?

Speculation rises that James Packer may be taking a majority stake in Crown, while Rio Tinto's major holder reduces its stake.

Billionaire James Packer looks to be standing ever so close to majority ownership of Crown Limited after $133 million changed hands late yesterday. The move comes amid speculation that Crown’s target, Echo Entertainment, could also be in the sights of Genting Singapore. Meanwhile, fellow billionaire Kerry Stokes has picked up another very handy Caterpillar distribution business to go with WesTrac. Elsewhere, we’ve got another sceptic for the possibility that National Australia Bank could sell its way out of the UK, some are asking whether Rio Tinto could throw its unwanted diamond business with BHP Billiton’s unwanted diamond business and China has cracked down on outbound foreign investment after a few cock ups.

James Packer, Crown

Gaming billionaire James Packer appears to have forked out $133 million to increase his interest in Crown Limited to above 48 per cent and raise the prospect of majority ownership before the end of the year. A parcel of 15.25 million shares – about 2 per cent of the register – changed hands at $8.71 a pop from investment bank UBS. It’s widely assumed that Packer’s Consolidation Press Holdings (CPH) was on the other end.

The interesting thing about this deal is that in December last year, CPH advised Crown that it had entered into a derivatives deal with UBS over about 2 per cent of the gaming company’s register. Remember the controversy that Packer created with the derivatives deal covering Echo Entertainment? In any case, the Crown deal appears to have been activated for CPH.

So is Packer thinking about taking majority ownership? It’s tantalisingly close. Australian takeovers law stipulates that a company can increase its stake by up to 3 per cent every six months without requiring a full takeover bid. Taking into account another purchase of Crown shares last October, CPH would be able to assume majority ownership at the beginning of the last quarter of 2012.

Echo Entertainment, Genting Singapore

Packer is very much focused on Echo Entertainment, with plans to use the company’s casino licence to construct an Asian high-roller attracting site in Sydney. But speculation is increasing that Crown could soon find itself with a rival for Echo. Casino operator Genting Singapore has raised $US1.8 billion ($1.74 billion) since February, adding to its existing 2.6 billion war chest. The theory is that the subsidiary of Malaysia’s Genting Bhd has enough firepower for a run at Echo, which has a market cap of $3.1 billion.

Seven Group, WesTrac, Bucyrus

Some of Packer’s latest movements have been juxtaposed with his recently revealed respect for Seven Group billionaire Kerry Stokes, who is himself on the acquisition trail. Seven’s heavy machinery company WesTrac has just picked up the local operations of US mining and parts firm Bucyrus for $389.4 million. WesTrac is already one of the largest distributors of heavy machinery dealer Caterpillar, and through this deal the company will pick up the Caterpillar businesses of Bucyrus.

National Australia Bank, Clydesdale Bank, Yorkshire Bank

As National Australia Bank chief executive Cameron Clyne gets hands down the review of the lender’s troubled UK operations, the market is settling on the idea that a sale isn’t really possible. Commonwealth Securities analyst Ben Zucker has become the latest to conclude that NAB won’t be able to secure a reasonable price for Clydesdale Bank and Yorkshire Bank at the moment with the British lending market’s current outlook.

Zucker concludes that the next best thing for NAB will be to focus on retail banking and ring fence its troubled commercial property loans from further losses. The problem for shareholders is that, rather than getting a big load of cash from a sale, they’re likely to cop further restructure charges and be told to wait for better conditions.

Rio Tinto, BHP Billiton

Rio Tinto could consider merging its diamond business with BHP Billiton or floating the business by itself. That’s the conclusion of sources that spoke to The Australian Financial Review. Rio joined BHP by announcing a review of the diamond business last week, which has got the market talking about whether the two could do something together. Four major diamond mines in a world that only has a few dozen ones that count would be thrown together.

Speaking of BHP, the miner’s major shareholder BlackRock has reduced its stake in the Australian company by about $800 million, according to documents submitted to the US Securities Exchange Commission. The news isn’t too surprising, given the criticism from BlackRock for BHP’s multibillion-dollar move into US shale gas.

Aston Resources, Whitehaven Coal

The former boss of Aston Resources has commenced legal proceedings against the coal company, throwing a spanner into the works of discussions with Whitehaven Coal. Solicitors acting on behalf of Hamish Collins, who was chief executive of Aston until 2010, have filed proceedings in the NSW Supreme Court seeking entitlement to ‘equity participation’ worth $157.4 million.

So far, Aston has not made any official comment on whether the court case has any impact on $5.1 billion merger discussions with Whitehaven. The company has stated that it believes it acted appropriately and will "vigorously defend these proceedings”.

Chinese foreign investment

Australia’s mining sector will find it a little harder to attract foreign investment from China from now on. China’s State Assets Supervision and Administration Commission (SASAC) has released a new set of rules for state-owned companies, including regulations for individual executives, to hold them accountable for foreign investments that go wrong.

It should be said that this won’t put a stop to investments from China that make sense, it’ll just mean there’s more caution. The two most prominent examples of investments that China would rather not have made are the CITIC Pacific Sino Iron project, the costs of which have blown out from $US2.5 billion to $US7.1 billion, and the second phase investment in Sinosteel Midwest project that’s been binned after too many complications.

Wrapping up

As expected, Ten Network chief executive James Warburton had nothing more to say about the potential sale of outdoor advertising business EYE Corp. Given that suitors have to put their bids in within days, it can’t be long until we’ve got some firm news.

Spotless Group says it will voluntarily audit the accounts of over 1,000 employees to make sure they’re being paid properly. The move, which could increase costs a fraction, comes amid chatter earlier this month that suitor Pacific Equity Partners (PEP) might increase its $711 million offer. Speaking of private equity targets, Pacific Brands shares have slumped significantly amid market speculation that Kohlberg Kravis Roberts nor anyone else are particularly interested anymore. Indeed, things have gone quiet at PacBrands, but The Australian Financial Review suggests that because UBS is still restricted from making a recommendation on the stock, it could be that the investment bank is working with another suitor. Given that KKR is working with Macquarie, it’d have to be another player.

And finally, speculation is increasing that CSL could be pondering an overseas bid. The company has a record of returning funds to shareholders, so many investors will see this news with some scepticism. But the strength of the Australian dollar gives CSL a window to turn the currency differentials into a positive.

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