BREAKFAST DEALS: Drilling Kloppers
BHP Billiton, WikiLeaks
With BHP Billiton boss Marius Kloppers putting the finishing touches on the mining giant's monster first half results, The Age has dug up some fresh dirt on him courtesy of its good friends at WikiLeaks. According to leaked US diplomatic cable, Kloppers took personal credit for derailing the $23.9 billion tie-up between Rio Tinto and Chinalco, describing the move as a strategic victory for BHP. The cable adds that Kloppers had expressed confidence that Rio's new chairman, Jan du Plessis, a fellow South African would be "more amenable” to doing a iron ore tie-up with BHP. Rio and BHP did announce a joint venture soon after the Chinalco deal was buried, however, it was subsequently scuttled by global regulators. Interestingly, the cable doesn't just shed light on the deal but also cites occasions where the BHP boss had told US consul-general Michael Thurston of his concerns about covert surveillance against his company by the Chinese, Rio Tinto and the Australian government. There are further revelations that Kloppers had asked US diplomats for insights on China's intentions and said he would be willing to trade secrets in order to obtain that information. The paper also cites occasions where the BHP boss had told US consul-general Michael Thurston of his concerns about covert surveillance against his company by the Chinese, Rio Tinto and the Australian government. News of behind the scenes machination by miners at Canberra is not a huge surprise to everyone and BHP's involvement in the Rio-Chinalco deal was revealed in December. But the latest salvo from WikiLeaks has a distinctly personal tone, one that won't be appreciated by Kloppers. However, with the cables yet to be made public it will be a while before the public can make up its own mind.
Leighton Holdings, ACS, Wal King, David Stewart
Leighton Holdings' boss David Stewart's first outing as the chief of the construction giant has been somewhat of a chastening experience and it looks like the man who took over from Wal King earlier this year has announced a top to bottom shake up of the company. The construction giant posted a 25 per cent drop in first half net profit, cut its dividend by 5 cents to 60 cents and confirmed that it will miss guidance for full-year net profit of $510 million. Leighton forecast a full year profit of $480 million but there is some confusion with regards to how the new forecast stacks up with the new one. The $480 million forecast includes a $202 million gain on the sale of the 35 per cent stake in Leighton India, while the previous $510 million forecast excluded the gain. This has prompted some to say that the downgrade is probably a lot worse than it looks. Stewart's company-wide strategic review is seemingly designed to make Leighton leaner, meaner and essentially put the brakes on the aggressive expansion undertaken by King. The review could see Leighton sell its underperforming businesses like Leighton Properties and its half interest in builder Devine, move out of unprofitable countries and target more government–sponsored infrastructure projects. However, the company is keeping the faith with its Middle East ventures despite taking a $100 million impairment on its 45 per cent stake in the Gulf-based Habtoor Leighton Group. There are also changes at senior management level, with Bill Wild appointed as deputy chief executive and Peter Gregg as chief financial officer. Leighton International managing director David Savage will retire from full time work this year to return to Australia. Stewart acknowledged yesterday that things had gone wrong somewhere down the line, telling the Australian Financial Review that Leighton worked more as a " rich contractor” rather than a "smart contractor ". Six weeks into the new job Stewart will hope he has what it takes to steer Leighton in the right direction.
The other interesting piece of news from Leighton was the announcement that the company had struck an agreement with Spanish construction group ACS that will allow it to operate as an independent entity. ACS has already picked up a 34 per cent stake in Leighton's majority shareholder Hochtief and there's a good chance that it will soon supplant the German company as Leighton's largest shareholder. Stewart is confident that ACS will respect Leighton's independence and is not after seats at a board level but The Australian suggests that the entire affair could open a way for Wal King to make a return to Leighton's board. Hochtief's eight directors are up for re-election in May including the four who sit on Leighton's board. Once ACS is successful in wrapping up Hochtief it could push to install its nominees on Leighton's board. King and ACS's boss Florentino Perez go a long way back and The Australian reports that King may have already held talks with ACS for a role. If the Spaniards do push for the four seats you can bet that King will be one of the names in the frame.
Rio Tinto, Alcan
Meanwhile, Rio Tinto has reportedly issued an warning to its aluminium division to raise its game or face the cut. According to Fairfax papers, the Canada-based division run by former Alcan executive Jacynthe Cote has been put on notice that performance needs to improve and that could mean a number of high cost operating assets may be put up for sale. Rio's boss Tom Albanese, told investors last week that Rio wanted margins from the aluminium division to edge up around 40 per cent or more. That could require some drastic action and analysts reckon that a number of the miner's aluminium facilities in Australia and New Zealand could get the chop.
Whitehaven Coal, New Hope Coal, Northern Energy, Bandanna Energy
Now to all the action in the coal sector, the market finally has an idea of the parties in the race for Whitehaven Coal with a Korean consortium led by Korean Resources Corporation confirming that it has submitted a preliminary bid for the miner. Whitehaven started looking for suitors in October and has since kept a lid on the list of prospective suitors, with the Koreans the first who have publicly out up their hand. Behind the scenes there are at least two Chinese parties in the running so this deal still has some legs in it. Meanwhile, veteran investor Robert Millner's bid for Northern Energy (NEC) looks destined for the bin with speculation that the target may have other suitors sniffing around. The Sydney Morning Herald reports that NEC's board is waiting to hear from the suitors – one from China and another from the US – on an offer that should beat the $1.85 a share put forward by New Hope. The paper adds that only one of the suitor is looking for a takeover with the other keen on forming a joint venture with NEC. New Hope has so far managed to get its hands on 5 per cent of NEC and if new suitors are indeed set to reveal their hand and it final and best offer could be short of the mark. However, that doesn't mean that Millner has run out of targets, in fact The Australian suggests that there might be prospective prey just around the corner in the form of Bandanna Energy. Bandanna has hired UBS to run a sale process as the coal miner looks to shore up its funding options and the paper reports that a cashed up New Hope has run the ruler over the miner. While its early days one can safely assume that the list of foreign suitors will include Chinese, US and Indian players who have been circling the coal wagons for some time now.
Wrapping up
Insurance Australia Group's (IAG) boss Mike Wilkins is under pressure to justify just what the insurer's operations in the UK are bringing to the table at the moment after they dragged down IAG's first-half numbers. The message from Wilkins for the moment is two pronged: firstly moves were underway to remedy the ailing UK business and secondly that the operations were still profitable in the longer term. The bottom line is that there are no immediate plans to exit the country. IAG posted a 23.1 per cent drop in its 2009/10 full year net profit in October last year with the UK operations again playing the culprit. IAG has forecast further pain in the second half and to be fair to Wilkins he has trimmed the UK business down since replacing Michael Hawker in 2008. Unfortunately the specialist motor insurance business has posted a greater-than-expected $121 million insurance loss. Disgruntled IAG shareholders, who probably have had a gutful of bad news, sent IAG shares tumbling yesterday and unless the remediation efforts do bear some fruit Wilkins could end up sharing the fate of Hawker. Back in the mining sector, late mining magnate Ken Talbot's investment vehicle Talbot Group has sold its 19.9 stake in uranium junior Marathon Resources to an unnamed party. The company has sold the stake worth $13 million at 75 cents a share. Meanwhile, New Zealand's Infratil Energy has picked up the Bamarang generation development site from the New South Wales government for $9 million. Bamarang was one of the sites on offer as part of the first tranche of asset sales put forward by the NSW government. The Bamarang site has been earmarked for the development of a gas fired power plant and Infratil said that project approvals are already in place for gas turbines with capacity up to 450MW. The acquisition should help Infratil boost its retail business Lumo Energy. Elsewhere, renewable power outfit Infigen Energy has reportedly dropped out of the race for the Emu Downs wind farm. According to the AFR, the wind farm – run by Griffin Coal and Stanwell Corporation – could fetch a price of around $200 million and for the time being Japan's Eurus Energy and gas infrastructure firm APA Group are seen as the top contenders. Finally in the agribusiness sector, Spain's Ebro Foods has improved the terms of its $600 million offer for Ricegrowers, the company behind SunRice. Ebro has now guaranteed to buy the rice grown by Ricegrowers at the benchmark price of California rice for seven years rather than five years. The benchmark is the highest price paid in the global market. Ricegrowers' has recommended the Ebro bid in absence of any superior offer.
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