BREAKFAST DEALS: Diamond days

Rumours emerge of a single purchaser for BHP and Rio's bling, while shareholders are exptected to sign off on Whitehaven-Aston.

A major deal is said to be brewing between private equity giant Kohlberg Kravis Roberts and Australia’s two largest miners, BHP Billiton and Rio Tinto. An international media report indicates that KKR is hoping to purchase the diamond divisions of both miners and combine them to create a dazzling new player. The news steals a little mining limelight from Whitehaven Coal and Aston Resources, with shareholders to vote on the $5.1 billion merger deal today. Elsewhere, Ten Network is said to be talking to social media giant Facebook about a content and advertising revenue alliance – kudos – CLP Holdings is powering up the proposed TRUenergy float and an Insurance Australia Group deal has really announced the company in Malaysia.

BHP Billiton, Rio Tinto

But first, we start with our biggest miners. Private equity giant Kohlberg Kravis Roberts is reportedly considering bidding for the unwanted diamond divisions of BHP Billiton and Rio Tinto to form the world’s third largest diamond house. The Sunday Times in London understands that KKR is in pole position to capture BHP’s $US750 million ($721 million) Ekati diamond mine in Canada. The newspaper goes on to say that a subsequent bid for Rio’s $2 billion diamond arm, which isn’t yet ‘unwanted’ but ‘under review,’ is in KKR’s calculations.

If combined, business would account for about 16 per cent of global diamond supply. That would make it the third largest in the world behind South Africa’s De Beers (owned by Anglo American) and Russia’s Alrosa. The assets mightn’t be core to the businesses of BHP or Rio anymore, but they’re still top shelf – though maturing – assets.

Whitehaven Coal, Aston Resources

Neither the cushy Boardwalk Resources deal nor the case brought about by a former chief executive look like derailing the merger between Whitehaven Coal and Aston Resources. Shareholders will vote on the $5.1 billion deal today and it’s expected to get up. A majority of shareholders and 75 per cent of total votes received have to be affirmative for the merger to pass.

The deal hasn’t been the smoothest of rides since it was announced on December 12. Serious questions were raised about the up to $491 million valuation of Nathan Tinkler’s private company, Boardwalk Resources, which has been slid into the deal. Then former Aston boss Hamish Collins popped up in the NSW Supreme Court with a $157.4 million ‘equity participation’ claim against his former employer. But so far no notable opposition has been mounted against the deal.

Ten Network, Facebook

Ten Network could be about to address its lack of a significant online presence through a strategic alliance with social media giant Facebook. According to Fairfax, the two companies are in talks to share content, audiences and advertising revenue. Because Ten has historically had an audience that’s skewed towards younger demographics – something it’s trying to recapture under new boss James Warburton – the deal makes an enormous amount of sense given the time young people spend bookfacing.

People familiar with the discussions, the report says, say the deal is shaping as one where Ten shares content of some of its larger shows on Facebook, allowing the network the perfect platform to interact with its audience. In return, Facebook would get a central position in the discussions around so-called "event TV” like MasterChef.

On a side note, remember how just last week Warburton went before shareholders for his first financial results as boss with a terrible set of numbers? He made a vague, passing reference to some "digital options” that Ten was considering. Who knew this is what he was coming up with?

TRUenergy, CLP Holdings

At $3 billion, the proposed float of 49 per cent of energy retailer TRUenergy by Hong Kong’s CLP Holdings is this year’s most important. The Australian Financial Review reports that the request for proposals have been sent out to the investment banks, which will now put their best forward for joint lead manager roles. The due date is said to fall just before ANZAC Day.

Rothschild is advising parent company CLP Holdings, based in Hong Kong, on the planned float. At the moment the timetable is still pointing towards November, closer to 2013 in reality. Between now and then, TRUenergy is going to have to handle allegations that former senior executives mishandled an internal sexual harassment complaint.

Insurance Australia Group, Kurnia Insurans

Insurance Australia Group won’t die wondering in its quest to generate 10 per cent of total sales in Asia. Its Malaysian joint venture AmG Insurance, of which it owns 49 per cent, has agreed to purchase big rival Kurnia Insurans for $480 million. In line with its ownership of the venture, IAG will contribute $235 million, with no need to raise debt.

The deal will solidify IAG as one of the largest general insurance companies in Malaysia just six years after entering the market. This while it’s bedding down a $106 million investment for 20 per cent of Bohdi Property Insurance, a Chinese player.

Centro Retail Australia

Centro Retail Australia chief executive Steven Sewell says the option of selling half stakes in some of the company’s prized assets was discussed when he first started talking to the retail property firm about taking the top job. Last week, Centro announced that it plans to sell up to 50 per cent of three of its best shopping centres: The Glen in Melbourne, The Galleria in Perth and The Colonnades in Adelaide. Speaking to The Australian Financial Review, Sewell says the option was discussed when he was first being sought as a future chief executive. This was at a time when Centro was fighting for its very survival in the lead up to its $3 billion restructure.

The total value of the assets Centro has in mind is $1.33 billion; so the most it could expect to reap would be $665 million. Given that Centro’s entire shopping centre portfolio is worth $4.4 billion, this is a substantial proposal. The proceeds will go towards paying down debt and refurbishing ageing complexes that have been largely untouched since the global financial crisis brought Centro Properties and Centro Retail to their knees.

National Australia Bank, Clydesdale Bank, Yorkshire Bank

Yet another sign has emerged that National Australia Bank will not be selling its way out of the UK. British fund NBMK Investments, thought by many as NAB’s best chance to offload Clydesdale Bank and Yorkshire Bank, has rekindled its offer for over 600 Lloyds Banking Group branches that are up for grabs. The move has been interpreted as a sign that NAB will opt for offloading the less attractive divisions of its UK footprint, rather than trying to sell out at the bottom of the market. NAB boss Cameron Clyne is set to hand down the findings of the bank’s review of the UK operations on May 10.

Gunns

Woodchipping company Gunns is offloading its woodchip terminal at the Port of Portland in Western Victoria to focus on becoming a pulp producer. The company, known for its proposed $2.5 billion pulp mill at Tasmania’s Bell Bay, is selling the port set aside for the woodchips from the ‘Green Triangle’ across Victoria and South Australia. It looks like Gunns will be able to source enough material from Tasmania.

Wrapping up

A decision from Pacific Equity Partners on whether to improve the offer for Spotless Group could be made within the next two weeks. The Australian Financial Review reports that PEP staff are due to return from holiday today to assess the issues that arose from due diligence.

In resources, shareholders in Glencore International and Xstrata will have to wait a month longer than expected to get a look at the paperwork for the headliner merger proposal. The two powerhouses told investors that they need more time to prepare documentation for a string of regulators, particularly the European Commission. Speaking of Glencore, with the commodity trading giant lobbing a friendly $C6.1 billion ($5.8 billion) offer for Canada’s Viterra, Australia’s GrainCorp is frequently cited as the next likely target in this wave of grains industry consolidation. However, The Australian Financial Review reports the opinion of Credit Suisse analyst Grant Saligari that there’s just as much chance that GrainCorp will become a predator. Obviously not for something as big as Viterra, but we love contrarians in Breakfast Deals.

Sims Metal Management is closing its plastics division, sensibly named SIMS Plastics, after failing to find a buyer. It’s a relatively small division with 15 employees taking redundancies and reassignments, but the arm has been operating for 25 years.

And finally in media news, The Australian Financial Review reports that the information memorandum for Nine Entertainment’s Ticketek sale will be sent out this week, and the newspaper’s management is set to receive a copy.

Related Articles