Breakfast Deals: Dexus defensive

Dexus Property holds firm in the face of Commonwealth Bank's lawsuit, while Perpetual faces regulatory concerns over its Trust Company bid.

Commonwealth Bank of Australia has lawyered up against Dexus Funds Management over the disclosure documents pertaining to a stake in Commonwealth Property Office Fund. Dexus doesn’t believe it’s in the wrong. Meanwhile, the consumer watchdog looms as an obstacle between Perpetual and The Trust Company, Amcor is demerging to the jubilant celebrations of many an investment banker and APA Group might have to throw in some cash for Envestra.

Commonwealth Bank of Australia, Dexus Property Group

Commonwealth Bank of Australia has gotten off to a rocky start in its effort to untangle itself from its listed property management businesses.

Commonwealth Property Office Fund has commenced legal proceedings against Dexus Property Group in the Federal Court following the ‘acquisition’ of a 14.9 per cent stake in the fund.

The bank claims that Dexus’s ASX documents did “not comply with relevant legal requirements,” resulting in a situation where the market wasn’t fully informed.

What CBA is getting at is the market doesn’t know the precise details of the forward contract that Dexus has secured to control a share parcel in the Commonwealth Property Office Fund.

Last night Dexus wasn’t budging, releasing a statement saying that it believes it has met disclosure requirements and was not obliged to release any more details.

It has engaged King & Wood Mallesons – which has just done a deal of its own with a UK firm – for representation in the matter.

The Trust Company, Perpetual, Equity Trustees

As anticipated, the greatest obstacle for Perpetual in the race for The Trust Company probably isn’t rival bidder Equity Trustees, but the competition regulator.

The Australian Competition and Consumer Commission chairman Rod Sims issued a statement yesterday saying that its initial take on the $220 million offer for Trust Co is that it “may raise competition concerns in relation to certain corporate trust services”.

Sims said concerns related particularly to Perpetual’s established strength in trustees services for debt capital market products. He said the competition regulator is also looking for more information about custodial services.

“Perpetual and The Trust Company are both strong providers of particular types of custody services, while the feedback about the ability of other parties to constrain the merged entity has been mixed,” said Sims.

“However, there are a number of factors that impose some degree of competitive constraint on Perpetual, including competition from existing trust corporations and the ability of some customers to provide these services in-house.”

Trust Co noted the decision from the ACCC, adding that it would work with the regulator to resolve the issues raised.

A final decision is now expected by September 19.


Packaging giant Amcor has of course jumped on the demerger train – but not in vein, writes Business Spectator’s Stephen Bartholomeusz.

As per usual, Bartholomeusz closes the book on the strategic reasons for the demerger and the appropriateness of the timing, so we won’t pile on more here.

What Breakfast Deals can say is this demerger comes on the back of an enormous amount of hooting and hollering from the investment banks encouraging companies to go for demergers as a way to unlock value.

As Bartholomeusz mentions, this comes on the back of the decision by Brambles to spin off its US document management business Recall.

UBS has been lucky enough to snare the business from Amcor to demerge the packaging and distribution business.

It’s an important bit of business for the investment bankers that have been starved in recent years from M&A advisory revenue.

But, as this column has been emphasising, lately there’s been some optimism creeping into the markets about a return of M&A and IPO activity that isn’t so beholden to the movements of the market.

Optimism has had many false starts in the post-GFC world, particularly in Australia. Best of luck to everyone.

APA Group, Envestra

Speaking of UBS, the investment bank’s David Leitch has told clients that gas pipeline company APA Group could throw in some cash to get the board of gas distributor Envestra over the line on a $1.3 billion merger deal.

APA owns 33 per cent of Envestra, meaning that extra incentive isn’t needed to beat away a rival bidder.

Leitch noted the 7 per cent slide in APA’s share price since the merger proposal was announced and suggested that APA could offer cash to its all-scrip offer to coax the target into accepting.

Envestra chief executive Ian Little has already indicated that the initial reception for the offer isn’t overwhelmingly great, although the board has yet to make that official.

APA’s offer of 0.1678 shares for each Envestra share and a three cents per share final dividend originally gave the target a value of about $1.10. The target closed yesterday at $1.11.

Based on APA’s closing price yesterday, Envestra shareholders would get something like $1.04, including the dividend.

The difference between the two shows how some speculators are predicting a higher offer from APA.

Elders, Futuris Automotive, Clearlake Capital Group

Debt-laden Elders has offloaded its car parts business Futuris Automotive for $69 million, 11 months after putting it up for sale, which will help reduce its net debt by $56 million.

Reports that a US private equity firm was in line to win the day turned out to be right on the money, with America’s Clearlake Capital Group picking up the business.

Elders shares jumped 11.4 per cent on the news, which is much need good news for investors. The stock is down 60.9 per cent over the last 12 months.

The 174-year old Australian icon was at one stage trying to sell its rural services business, but ended up rejecting an offer from rival Ruralco.

Now it’s seeing if it can get that debt load under control. This should go a long way towards doing that.

Wrapping up

Virgin Australia and Air New Zealand have jointly called on the competition regulator to reauthorise their trans-Tasman alliance for five years instead of three, so they can compete with Qantas Airways and Middle Eastern giant Emirates.

The pair has also urged the ACCC to lower the number of capacity guarantees imposed.

In resources, Woodside Petroleum boss Peter Coleman has been keen to meet head on the doubts over its involvement in the Israeli Leviathan gas field due to possible changes to the structure of the project.

“The opportunity to buy in to a resource like Leviathan is a once-in-a-decade opportunity," Coleman said in a speech yesterday.

“It is one of the largest recent gas discoveries worldwide, ideally located to produce gas for Israel's domestic market and export to Asia, Europe and neighbouring pipeline customers.”

Uranium miner Paladin Energy is in a trading halt ahead of a strategic update. The speculation is it could have secured a deal to offload its minority stake in the Langer Heinrich mine in Namibia.

And finally, the International Olympic Committee is trying to entice Nine Entertainment back to the table after the network passed on bidding again for the games after losing big in London, according to The Australian.

The newspaper reports that the IOC has repackaged the rights for the Australian market for a deal that will now include the Rio 2016 Summer Games, the Pyeongchang Winter Olympics in 2018 and the Games of 2020.

Kerry StokesSeven Network is still thought to be favourite.

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