BREAKFAST DEALS: Crown's jewels

Crown and Echo are to chase Asian VIPs, while diamonds are no longer Rio's best friend as it looks to offload assets to Harry Winston.

After enduring months of destabilising attacks from James Packer's Crown, you'd think Echo Entertainment's rivalry with its biggest competitor — and major shareholder — would be more ferocious than ever. Perhaps not. Rumour has it the casino operators might wager on unlikely alliance, and the deal might present Packer with a new path to Echo's boardroom. Meanwhile, Rio Tinto is said to be close to inking a diamond deal, while Fortescue might be forced to sell some assets of its own. Elsewhere, will Billabong profit from its latest posturing?

Echo Entertainment, Crown Limited

Longtime casino rivals Echo Entertainment and Crown are reportedly considering establishing a joint venture in the Australian VIP market, in an effort to fend off increasing competition from Asian rivals.
The Australian Financial Review reports both companies are open to the plan, which was put forward by Crown chairman James Packer. However, a tie-up would only be discussed in detail if Packer is granted regulatory approval to lift his company's stake in Echo from 10 per cent to 25 per cent.

An alliance in the VIP market, which could involve joint marketing and other forms of cooperation, might remove Echo's objections to Packer appointing a nominee to its board, according to the newspaper.

It could also see the gaming groups partner on a new luxury hotel and casino at Sydney's Barangaroo development.

One complicating factor is the emergence of Genting as a 10 per cent stakeholder in Echo. The Malaysian group, controlled by billionaire KT Lim, has also applied to lift its investment in the local casino operator.

Echo's new chairman, John O'Neill, is said to have met with Lim and other Genting representatives twice in recent months. However, a source told the AFR those "extremely careful and cautious but definitely calm and non-hostile" talks didn't reveal much about Lim's plans for Echo.

All eyes are now on the NSW Independent Liquor and Gaming Authority and the Queensland Attorney-General, which will ultimately decide how much further Genting and Crown are allowed to proceed.

Harry Winston Diamond, Rio Tinto

Rio Tinto appears to be close to selling a major diamond asset to Canada's Harry Winston Diamond.

Two industry sources told The Financial Times Harry Winston is understood to be in exclusive talks with Rio about buying its 60 per cent stake in Diavik Mine, which the Canadian group already owns the remainder of. The sources expect Rio to raise at least $C600 million ($570.1 million) from the sale.

Harry Winston's pursuit of the Diavik stake is no surprise. As an existing stakeholder, the company has been named as a likely buyer since Rio put its diamond assets on review in March.

But negotiations appear to be getting serious. Talks are said to have been running for about two weeks, and Harry Winston is apparently ready to issue debt to fund the deal.

Fortescue Metals Group

Meanwhile, recent shouting about a sustained slide in the price of iron ore will be ringing particularly loudly in the halls of Fortescue Metals Group's Perth headquarters.

The price of the commodity is tumbling towards levels that put Fortescue's debt position at risk, which might force Australia's third largest iron ore miner to raise equity or sell assets, according to a report by JPMorgan's Lyndon Fagan cited in the Fairfax press.

At $US117 per tonne, iron ore is worth 13 per cent less than it was a fortnight ago, and the price is off about 40 per cent compared to its 2011 high. Most importantly, the metal has fallen below $US120 a tonne, which was widely regarded as the floor for the price of Australia's largest export.

Fagan says the downward trend would be "uncomfortable" for Fortescue, which is planning to increase its debt load to $9 billion as it invests to almost triple its production in the years ahead.

"'If the benchmark price averages below $US115 per tonne for the next 18 months, FMG may need to look at funding options outside of debt,'' Fagan says.

'FMG's debt and cash flow would then be insufficient to complete the expansion.''

However, Fagan expects the iron ore price to rebound over the next 18 months to around $US134 per tonne. A spokesman for Fortescue also told Fairfax it forecasts prices between $US120 to $US150 within "a few months".

Billabong International, TPG

Billabong may have granted TPG access to its data room, but the surfwear company is still hoping it can emerge from the swell with more than the $1.45-a-share currently on offer.

After all, Billabong's announcement that it will allow TPG a "non exclusive" look at its books was riddled with jabs at the reduced $695 million bid.

"TPG will be granted the opportunity to conduct … due diligence in order to reduce the conditionality of its proposal and to improve its understanding and valuation of Billabong," the target said in a statement to the ASX on Friday.

"There is no guarantee that, following the due diligence process, a transaction will be agreed or that the board will recommend an offer at the current proposed offer price."

"In fact, the board of Billabong does not believe that the proposal reflects the fundamental value of Billabong in the contact of a change of control transaction."

In the absence of a rival bid, though, TPG won't be too worried. Billabong has already lost the support of its two biggest shareholders, Colonial First State Investment and Perennial Value Management, and there of plenty of others still angry about the target's botched handling of TPG's initial approach in February.

The bidder might sweeten its offer a little, but it won't be anywhere near the $3.30 per security previously on offer.

Due diligence is expected to begin this week, once both companies agree to the terms of a critical confidentiality agreement, according to The Australian. The newspaper also understands Billabong is yet to seek an independent valuation.

Wrapping up

Westfield intends to spend an additional £3 billion ($4.51 billion) in Britain in the next few years as part of a new focus on upmarket projects, the company's co-chief executive Steven Lowy has told The Australian.

Westfield, which has already spent £4 billion on its five existing British shopping centres, plans to pump the new funds into the development of the Broadway centre in Bradford, in northern England, the expansion of its Westfield London centre in Shepherds Bush and its proposed redevelopment of a shopping centre south of London, Lowy says.

In the meantime, the company plans to continue selling lower-quality assets in the US, UK and Australia to fund its upscale ambitions.

The Takeovers Panel will shine light on a more immediate investment proposal this week, when it rules on complaints about Dulux Group's $200 million bid for Alesco.

Alesco claims Dulux's hostile offer — consisting of $2.05-a-share cash and a 42 cent dividend, including 18 cents in franking credits — is too complex. It wants a declaration of unacceptable circumstances from Dulux. It has also requested an interim order restraining Dulux from lodging or publishing a supplementary bidder’s statement and an interim order forcing Dulux to provide a corrective announcement.

It is understood that the Takeovers Panel will hear from both sides early this week and could make its decision in the next few days, according to The Australian.

Deal watchers will also be looking to China's National Development and Reform Committee for hints about the nation's future iron ore demand, when it rules on Sichuan Hanlong Group's $1.7 billion bid for Sundance Resources.

The Middle Kingdom's top economic planner is expected to indicate whether it will allow the deal to proceed tomorrow.

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