BREAKFAST DEALS: DJs in the dark

More details emerge on the mysterious DJs bidder, while St Barbara must prove all that glitters is not always gold.

Over the weekend some truly odd details about the mysterious suitor for David Jones emerged, setting the scene for some ‘clarifying announcements’ this week. Meanwhile, St Barbara has made a play for fellow gold producer Allied Gold Mining, although it’s doing some work to talk down the size of the premium. Elsewhere, Thakral Holdings has mounted a stiff defence against Brookfield, a close Gina Rinehart watcher says the mining billionaire won’t sell out of Fairfax Media and Peter’s Ice Cream is back home, sort of.

David Jones, EB Private Equity

If there’s a takeover proposal for a leading Australian company that’s created more bizarre tangents than that of UK/Luxembourg-based EB Private Equity for department store David Jones in recent memory, Breakfast Deals isn’t aware of it.

On Friday, DJs released a statement indicating that it had received a proposal from a "non-incorporated UK entity”. That was followed by another statement confirming a report by an otherwise unimpressive and newly created newcastleetcfinanceblog, that the $1.65 billion offer would be funded via $850 million consortium equity, $450 million in borrowings and $450 million of "residual equities for the existing David Jones shareholders”.

From the very outset the story was strange. Firstly, the firm does not appear on Companies House, where private companies from England are supposed to be listed. Secondly, the revealing blog has only been going for a month and the DJs story is the only story not lifted from other media sites. This story is either dodgy or a great early scoop for newcastleetcfinanceblog.

But things just get weirder from here.

As revealed by The Australian, the EB website bares a striking resemblance and similar wording to an apparent US-based private equity player called Invest 4 Technology Group (click here to compare it yourself).

Giant "who cares” you might rightfully say. The curious thing is Invest 4 Technology lists its headquarters as 601 S Figueroa St, Los Angeles. That’s the same place as property developer Brookfield Asset Management.

The newspaper says EB chairman John Edgar has refuted the suggestion that his firm is just a front for Brookfield, which by the way is redeveloping Queensland’s Indooroopilly Shopping Centre as part of a $450 million contract. A new 14,000 square metre David Jones site is one of its features.

Speaking of Edgar, the man is also listed as sole director of Luxury Beverage Company, which was behind the launch of a $5.3 million a bottle non-alcoholic drink (that’s right) for the Islamic market (where drinking is…advised against).

While all this might flummox readers, DJs’ advisers Gresham and Freehills have been wrestling with whether the poms are taking the piss since May 22. According to The Australian Financial Review, that’s when EB made an initial offer.

All these eccentricities distract from the fact that DJs is a legitimate takeover target. The value of its properties is estimated to be about two-thirds of its market capitalisation. Selling the properties and leasing them back to the retailer, then floating the business when the market volatility from the bitterness remaining from the Myer IPO has subsidised, is a pretty simple play.

The AFR says EB is still looking for an Australian adviser to run it through this process.

Edgar is set to seek a conversation with DJs chairman Bob Savage sometime this week. Can you imagine how that conversation might go?

St Barbara, Allied Gold Mining

The task ahead of ASX-listed gold miner St Barbara is to convince its shareholders that the earth-shattering 89.6 per cent premium it’s offering Allied Gold is somewhat illusory.

Both boards have thrown their support behind a scheme of arrangement to create a $1 billion producer. Allied shareholders would receive $1.025 in cash and 0.8 Barbara shares for each of their shares, valuing the target at $556 million based on the final trading prices before the offer was announced.

St Barbara chief executive Tim Lehany came under pressure from analysts who thought the premium was a bit much. He countered that their original idea was for a 50 per cent premium, but share price fluctuations have inflated the offer somewhat.

St Barbara is paying for the deal with existing cash reserves and a $120 million term loan facility from National Australia Bank and Barclays.

The analysts might have poured pressure on Lehany, but that would logically mean things are a bit happier on the target’s register.

"We are pleased to have already secured support from Allied Gold shareholders representing some 54 per cent of shares on issue.” Lehany said in a statement to the market.

This 54 per cent is based on "irrevocable undertakings” from Baker Steel Capital Managers LLP, Frankling Advisers Inc and Resource Capital Fund, verbal commitment from M&G Investment Management in the absence of a better offer and letters of intent from 14.6 per cent of the register.

Thakral Holdings, Brookfield Office Properties

Listed Australian property developer Thakral Holdings backed up its rejection of a $410 million takeover offer from Brookfield Asset Management with the release of the independent expert’s report on Friday.

But a few question are being asked. Brookfield’s offer at 70 cents a share was knocked back as too low, and the Grant Samuel report has vindicated this by valuing Thakral at 88-96 cents a share.

The top end of that range reflects the net tangible asset backing of each Thakral share. The market has clearly paid little attention to NTAB numbers of late and any number of transactions has slipped easily below those numbers.

Before the offer was released to the market, Thakral was trading not far above 50 cents a pop. Additionally, recent transactions in the downtrodden sector haven’t reached the sort of levels that the independent expert report is pointing to.

Fairfax Media, Gina Rinehart

Gina Rinehart’s unofficial biographer, Fairfax journalist Adele Ferguson, doesn’t believe the mining billionaire will sell her stake in Fairfax Media.

Instead, Rinehart will more likely use creeping provisions to edge up her share in the company above 19.9 per cent, without making a takeover offer. She currently has 18.7 per cent.

"I think she’ll keep buying…Gina is a very determined person, she’s never given up before in everything she’s done,” Ferguson said. "I think what she’ll end up doing is maybe just creeping 3 per cent every three months.”

Ferguson cast doubt on the prospect of Rinehart making a full takeover offer because her core ambitions remain with fulfilling her father’s dream of an operating mine at Hancock Prospecting. That will require money, and a lot of it.

Ferguson made the comments to ABC Television’s Inside Business program yesterday, just two days after Rinehart issued a rather hostile and personal challenge to Fairfax chairman Roger Corbett.

Rinehart called on Corbett to target, as chairman, a share price of 87 cents a share. Fairfax stock will open this week at 55.5 cents.

Fairfax fired back at Rinehart, saying that other media companies, including Ten Network where she also sits on the board, had fallen just as severely as Fairfax. The question Fairfax is alluding to there is whether Rinehart should be levelling a similar demand at Ten chairman Lachlan Murdoch.

Elsewhere in media, Rupert Murdoch has confirmed that the plan to split the company’s publishing assets from the entertainment division would not apply at News Limited, new owner of this publication.

That means that News Limited’s existing and potentially expanding stake in Foxtel would remain with the Australian publisher in the publications arm of News Corp.

Wrapping up

While we’re on entertainment, Village Roadshow has flagged the possible float of its film production arm on the local exchange after announced a $380 million recapitalisation of the group.

Elsewhere, the long journey to sell Leighton Holdings’ Thiess Waste Management is coming to an end with final bids submitted before the weekend. However prices have fallen short of Leighton’s hopes of $300 million and speculation is increasing that SITA, a joint venture between France’s Suez Environment and Singapore’s Sembcorp, might have dropped out.

From garbage to groceries, Metcash has gotten its $325 million share placement away, declaring that the offer was strongly supported by existing institutional shareholders and new investors.

In the resources sector, logistical support company BIS Industries looks like it's now off the market again, according to The Australian Financial Review, with private equity owner Kohlberg Kravis Roberts unimpressed with the proposals it received.

Meanwhile, the same newspaper reports that Altona Mining is expected to announce this morning that it will start talks with Swiss giant Xstrata over its Roseby copper tenements.

And finally, Australian private equity player Pacific Equity Partners has won the bidding process of Nestles Peters Ice Cream business. It was expected that the offers would centre around $300 million; the price of the transaction has been kept confidential.

It marks a return home of sorts for the local ice cream brand. Although it’s not as well known that an American expatriate, Frederick Augustus Bolles Peters, created the iconic Australian brand.


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