BREAKFAST DEALS: DJs desire

A Macquarie analyst joins those seeing value in a leveraged David Jones buyout, while Sundance Resources sets a deadline on a Chinese takeover.

David Jones

Macquarie analyst Greg Dring has added his voice to the growing chorus of onlookers that see department store David Jones as a possible leveraged buyout candidate. The theory goes that DJs would be an easy thing to pick up, break apart and sell off for a profit because the share price doesn’t reflect the sum of the retailer's parts – specifically real estate. Indeed, the company’s flagship stores in Melbourne and Sydney carry a book value of $460 million, but Macquarie estimates that they could be worth $750 million. Given that DJ’s current market cap is $1.16 billion, you can see why this theory has legs.

However, as Elizabeth Knight points out in The Sydney Morning Herald, there’s one big problem with purchasing DJs – and that’s Myer. Imagine the scenario where you purchase DJs and get some of the property away, you’ve still got to get rid of DJs if you follow the strategy through to the end. That is, unless you want to ride the ever-exciting ride that is Australian retail for the long-term.

The Myer float has been a complete disaster for shareholders that bought in. The stock is worth half what it was when it was floated and you can’t imagine that financial advisers would be able to uncritically recommend a DJs float with a straight face in the near-term. As such, if there’s a willing buyer out there hoping to snap up DJs, there is a no returns policy.

AGL Energy, Loy Yang A Power Station

AGL Energy might have picked up the remaining stakes in the Loy Yang A Power Station in Victoria, but the competition watchdog has cautioned other players in the market from thinking the gate is open for similar deals. The Australian Competition and Consumer Commission couldn’t find sufficient reason to maintain its opposition to AGL taking out the remaining shareholders, including Japan’s Tokyo Electric Power Company. "When you sit and look at the market,” said ACCC chairman Rod Sims to The Australian, "this one is fine but the next one will require much, much more scrutiny.”

Sims is concerned that with AGL left to compete with just Origin Energy, TRUenergy, Independent Power and Snowy Hydro, the competition in the market place could be reduced dramatically with more consolidation. As Business Spectator’s Stephen Bartholomeusz explains, AGL chief executive Michael Fraser has shown a bit of pluck and won a bit of luck to pick up Loy Yang A.

Sundance Resources, China Sichuan Hanlong Group

Sundance Resources shares staged a brief rally on the back of news that the iron ore company has set a deadline for the takeover proposal from China Sichuan Hanlong Group. Sundance now hopes to complete the $1.7 billion takeover in November, which will require the approvals from the republics of Cameroon and Congo. By now it’s well known the potential for the Mbalam iron ore project that straddles the border between the two countries, with a production target of 35 million tonnes.

Sundance shares finished the session up 3.8 per cent at 41.5 cents a pop. To put this into context, that’s still a long way off the 57 cents a share that Hanlong is proposing. Sundance said that the companies have "simplified” the timetable for the deal, whatever that means.

Foxtel, Austar United Communications, James Packer, Fairfax Media, Nine Entertainment

Pay TV company Foxtel has just signed off on the acquisition of regional player Austar United Communications just in time for the sure-fire ratings generator, the Olympics. However, the fact that the $2 billion union is now bedded down increases the chances of billionaire James Packer exiting Consolidated Media Holdings, which owns 25 per cent of Foxtel, for another venture – notably, gaming.

According to The Australian, Deutsche Bank equities analyst Andrew Anagnostellis believes that the timing of the deal increases Packer’s prospects of getting out of Foxtel through his ConsMedia stake. "The deal has happened at the opportune time, given the slowing growth trajectory of pay-television and increasing competition from (free-to-air) TV," Anagnostellis said, according to the newspaper.

Meanwhile, at Packer’s old stomping ground of Nine Entertainment, another potential bidder has emerged. There have been references made that Fairfax Media would probably be interested in a bid for Nine as CVC Asia Pacific tries to fend off US hedge fund lenders. The Australian reports that the publisher of its greatest rivals conducted a two-day board meeting this week, with acquisitions on the agenda. However, the Fairfax share price might mean that a serious bid is out of reach.

Flinders Mines, Magnitogorsk Iron & Steel Works

Flinders Mines is in a trading halt pending the decision of court proceedings in Russia, where minority shareholder Elena Egorova is holding up a $554 million takeover offer from Magnitogorsk Iron & Steel Works. Egorova is arguing that the deal is a dud with operational and financial risks, and would thus hurt the value of her shares. Egorova lodged a motion with the Arbitration Court of Chelyabinsk Region of Russia, and Flinders shareholders have been treading water ever since. The share price has understandably retreated from the offer price of 30 cents a share. The trading halt is set to expire on Monday, with the stock at 16 cents a pop

Wrapping up

Mining giant BHP Billiton has launched its first European bond in three years in a fresh bid to diversify its funding portfolio. The miner issues €2 billion ($2.6 billion) in a two-part offering of which 1.25 billion euros are due November 2018 with a yield 65 points above the swap rate, and 750 million euros due in May 2024 yielding 100 points above the swap rate.

Origin Energy has secured one of the more remarkable financing agreements in Australian corporate history, in conjunction with its Australia Pacific LNG partners, US energy giant ConocoPhillips and China’s Sinopec. Between the governments in Washington and Beijing, APLNG will receive a total of $US8.5 billion ($8.7 billion) on very reasonable terms, reducing any need for Origin to reduce its equity holding in APLNG to settle its funding obligations.

And finally, African Petroleum is reportedly in discussions with two Chinese investors that are interested in taking stakes of up to 10 per cent in the company. According to The Australian, negotiations are advanced and any transactions could be worth hundreds of millions for the West Africa-focused miner.

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