BREAKFAST DEALS: EB questions

ASIC makes a move in the wake of the DJs takeover bid that has everyone perplexed, while a Russian investor outmanoeuvres Flinders Mines.

The corporate regulator says it’s going to look into the swiftly removed David Jones takeover from the UK’s EB Private Equity, just as Macquarie Bank is trying to play down its encounters with the mysterious player. Another fishy deal has come to an end with Flinders Mines finally losing its Russian suitor. Meanwhile, Aurora Oil & Gas is having better luck with Eureka Energy by winning through to compulsory acquisition territory, Perpetual has done an apparently strange about-face with Echo Entertainment and Archer Capital’s growth arm has beefed up with $300 million.

David Jones, EB Private Equity

Efforts will no doubt be made at the corporate regulator to keep faces unmistakably straight when investigating the EB Private Equity offer for David Jones.

The Australian Securities and Investments Commission said it has been keeping a close eye on events since the $1.65 billion offer from the mysterious UK firm for the Australian department store was made public on June 29.

"Consistent with its usual practice, ASIC is looking at potential issues regarding disclosure and trading in David Jones stock both by domestic and international parties,” ASIC said in a statement on its website.

The news comes as Macquarie Bank tries to get its name out of the EB headlines.

Fairfax reports that Macquarie was listed in one of the letters that emerged over the weekend from EB chairman John Edgar. Though it had been blackened out, the report says Macquarie was named as the company that was principally organising the financing.

The report says Macquarie claims it never took EB seriously and at no time was it an adviser to the firm.

At the moment the focus is entirely on the Australian regulators – Australian takeover laws and continuous disclosure obligations have been a source of contention for some time.

But it’ll be interesting to see if Canberra eventually draws in the British to see what can be done at their end.

At present, even the British press are perplexed by the events. EB describes itself as a "real estate and real estate related investor, developer and private equity partner,” but The Telegraph in the UK says "no one in the property industry had heard of (them)”.

For its part, EB has blamed the media for the outcome.

"Our intention was to hold preliminary discussions with the David Jones board while financial partners continued to be approached,” EB said in a statement on its website. "Recent unfounded, inaccurate and ill informed publicity around our proposal has made it difficult for these discussions to take place.”

The statement went on to blame the DJs board for its determination not to engage with EB, adding that this would be its final statement on the matter.

If the charge is that the Australian press effectively ended a takeover proposal for one of our largest retailers, then surely that’s something ASIC should look at in its upcoming investigation.

But the one striking thing about the reports on EB that raised suspicion about its credentials was that they were very specific.

EB wasn’t registered on Britain’s Companies House where private UK firms must be found; the company has a tiny amount of funds under management; and Edgar’s only other widely known venture is in a non-alcoholic beverage that apparently fetches millions of dollars a bottle.

In reports that weren’t strictly levelled at EB, there was noted its striking resemblance to another firm called Invest 4 Technology, which is housed in the same building as Brookfield Asset Management, and the strange blog that appears set up for no other reason than to break the exclusive on the EB bid and post carbon copy versions of other business stories – and only a few of them.

Unlike almost any other claim that’s disputed as misleading, inaccurate or flat out false, all these reports are verifiable with a few mouse clicks.

Breakfast Deals has sympathy for those who are misrepresented in the press and makes every effort to correct mistakes when they occur. But EB has disputed the accuracy of Australian business media reports without clarifying anything.

You know, like Macquarie did.

Flinders Mines, Magnitogorsk Iron & Steel Works

It was a day where shady takeover offers came to an end.

Shares in Flinders Mines sank after one-time suitor Magnitogorsk Iron & Steel Works withdrew its $554 million offer thanks to the successful legal manoeuvring of one Elena Egorova.

The as yet not-publicly seen investor commands just 0.001 per cent of MMK, yet it derailed the takeover offer on the basis that it might hurt her financial investment.

It’s either a day of celebration for Russian investor activism, or more likely a creative exit for MMK.

The Australian Takeovers Panel decided not to intervene in the matter, and it’s unlikely they could have done anything anyway.

However the Panel did send out a warning to other boards to make sure they write their takeover proposals very carefully to prevent this sort of incident.

"It may be wise for target directors in future to consider very carefully the drafting of these conditions,” the panel said.

Of course, Flinders hasn’t been abandoned without the possibility of another potential dance partner.

The company is in a similar position to BC Iron, which offloaded half of its project and secured rail and port access in return.

And Flinders is within striking distance of Fortescue’s Solomon Hub.

Aurora Oil & Gas, Eureka Energy

Aurora Oil & Gas has hit compulsory acquisition territory with its $108 million play for Eureka Energy – finally, a successful proposal this morning.

Aurora released a statement yesterday indicating that 91.75 per cent of the target’s shareholders have accepted the 45 cents a share offer, which means the remaining shareholders have no choice but to jump on board.

Aurora’ pitch for the US-focussed gas explorer wasn’t entirely a case of smooth sailing.

Some might remember that back in mid-June, Eureka was asked by a company called Lonestar Resources to review a rival merger proposal. It was a reverse proposal where Eureka would be the acquiring party, presumably on favourable terms.

However the proposal was withdrawn the very next day and Eureka’s two unconvinced directors, Ian McCubbing and Bill Bloking, soon joined Mark Wilson in supporting the Aurora deal.

Now it’s all over.

Echo Entertainment, Perpetual

Either something has happened at Echo Entertainment in the last two weeks, or something’s going on inside Perpetual.

How else do you explain the move by regulators to allow Perpetual to increase the upper limit of what Perpetual can buy of Echo to 15 per cent from 10 per cent, when a statement from Echo indicated that Perpetual was no longer a substantial shareholder? That kicks in when you sink below 5 per cent.

The NSW Independent Liquor and Gaming Authority and the Queensland government have given the go-ahead to Perpetual to seek up to 15 per cent if it sees fit.

This of course has raised hopes for speculators that similar lobbying by Crown billionaire James Packer and Genting billionaire KT Lim may achieve something similar.

In fact, The Australian Financial Review reported yesterday that Genting is increasing its efforts to win these approvals.

Whitehaven Coal, Nathan Tinkler

Still in resources, the planned consortium play for Whitehaven Coal by major shareholder Nathan Tinkler is making more sense by the day.

According to The Australian, analysts have been downgrading the freshly-merged coal company in the wake of stubbornly weak coal prices.

When the bid first emerged, there was much scepticism in the market that Tinkler would be able to offer a "healthy premium,” as one report attributed him to be plotting.

Indeed, many wrote off any offer below $6 as not serious. Analyst price targets were well above that level and the company’s share price was valued above those levels when the Aston Resources merger went through just a few months ago. Breakfast Deals was persuaded on a number of occasions by this argument.

Well, now the price targets are starting to come down. The report says there are some industry onlookers who still see some long-term value in Whitehaven. But it does given more weight to reports that Tinkler is looking to take a $5.50 proposal to the board and is not expecting to be sent packing.

Wrapping up

Private equity player Archer Capital has reportedly raised $300 million through its mid-market arm, Archer Growth Fund, which is more than the $250 million it was targeting. We’ll have to wait to see what they end up throwing it at.

Meanwhile, German chemicals distributor Brenntag has picked up Australian and New Zealand ISM/Salkat Group.

Baker & Mackenzie advised the Germans on the $100 million transaction and Brenntag is expected to begin integrating the two units later this month. Allens was helping out the sellers.

In media, The Australian Financial Review reports that Seven Group Holdings billionaire Kerry Stokes appears to moving towards a sale of the company’s internet communications company, Engin. This makes sense in the wake of the sale of Vividwireless to Optus.

And finally, the privately owned Flinders Ports has secured a 60 per cent stake in the Adelaide Container Terminal arm of DP World South Australia, giving it control of the asset.

According to The Australian, the deal values the business at more than $200 million.

Dubai’s DP World controls more than 60 terminals around the world and still has four other container sites in Australia.