BREAKFAST DEALS: Echo entree?

Genting beefs up its stake in Echo at an intriguing time, albeit only slightly, while Elders is left disappointed with Ruralco's offer for its Futuris business.

Malaysia’s KT Lim has returned to the scene by increasing his stake in Echo Entertainment, but not by as much as we’d expect from a billionaire. What’s going on here? Elders reportedly has a US private equity firm on the line for its Futuris business after Ruralco’s offer for its rural services arm disappointed. Meanwhile, AustralianSuper is leading the super industry consolidation push, Stonewall Mining’s Chinese suitor has raised a handy $US300 million for its offer and Billabong International’s share price has hit some fresh all-time lows.

Genting Hong Kong, Echo Entertainment

Malaysian casino mogul KT Lim has sparked widespread chatter about his plans for Echo Entertainment with what is actually a very modest purchase of the Australian company’s stock.

According to a substantial shareholder notice lodged to the ASX late yesterday, Genting Hong Kong has increased its stake in Echo to 6.6 per cent from 5.22 per cent.

It’s really the timing of the move that’s interesting. Echo and rival Crown Entertainment have until Friday to submit proposals to the NSW government for new gaming facilities.

With both Echo and Crown billionaire James Packer predicating their pitches on the other’s proposal not being approved, this is a one-or-the-other decision from the O’Farrell government.

While it’s tempting to envisage a Malaysian billionaire betting that Packer won’t win the NSW government’s approval, it’s difficult to deduce much from this move alone because it’s pretty small.

Genting has purchased just 11.4 million shares. While the substantial shareholder notice didn’t reveal the average price paid, a look at Echo’s chart shows the stock was picked up somewhere between $2.86 and $2.95.

Lim doesn’t have the blessing yet from regulators to take his stake beyond 10 per cent, but he still could have taken it to 10 per cent. Why not if it’s strategically important to you and a deadline is coming up with the stock at near all-time lows?

When Echo started trading on the ASX back in June 6, it was sitting at $4.36. The shares are down 29 per cent from their debut session, they’re down 32 per cent since Genting first bought in and down 24 per cent from the day Genting was forced to offload part of its stake.

It’s possible that Genting is taking advantage of a price dip as much as it’s placing its bets on the future of Sydney’s casino market.

It’s also worth considering the possibility that Lim is betting Echo won’t win the approval of the NSW government.

Echo has $1 billion in existing debt against a market cap of $2.8 billion. Having just invested almost $1 billion on a refurbishment of The Star – which has yet to deliver a solid return – and proposing to invest even more in Sydney, Echo has also proposed to spend $1 billion on a new casino an entertainment project in Brisbane.

What’s to say that if Echo’s NSW plan is rejected the share price won’t rise because investors won’t have to worry as much about the company’s capex and balance sheet?

Now, this scepticism could all be for nothing and Lim is in fact doing what he can while he can. But aside from applying to increase his stake to more than 10 per cent, and only briefly owning as much as 10 per cent, we’ve never really been privy to what his intentions are.

Just sayin’ is all. Friday can’t come quick enough.

Elders, Ruralco

Well, it turns out that Ruralco was so far short of the mark with its offer for the Elders Rural Services arm it so covets that the target’s board needed little more than a weekend to reject it.

Elders told the market yesterday that the offer made was “inadequate” and that it continued to receive the support of its lenders as it looks towards alternative strategies. The rural services company’s lenders include ANZ Bank, Commonwealth Bank, Bendigo & Adelaide Bank and Rabobank.

The target didn’t mention Ruralco in its statement to the market, but its former merger suitor released its own statement to the market.

Elders says it’s in “a short period of exclusive negotiations” with one of the three bidders interested in its Futuris automotive parts business. The Australian Financial Review reports that the bidder is a US private equity firm.

As an aside, this column’s suspicion that the Elders trading halt would be extended for prolonged negotiations with Ruralco over the fate of its rural services business turned out to be worth something like bugger all. It didn’t happen.

Elders began trading again yesterday, diving 22.2 per cent to 7 cents.

AustralianSuper, AUST(Q) Super

The consolidation of the Australian superannuation industry has hastened with the sector’s biggest fish, AustralianSuper, taking up a Queensland industry fund.

Aust(Q) Super will be gobbled up by AustralianSuper, which has some of the lowest administrative costs in the country, thanks in no small part to those costs being spread over 2.1 million members.

It’s expected that this will be just one of several superannuation mergers with the government’s MySuper initiative giving greater incentive for funds to lower their cost of administration.

When all this is over, there’s going to be some very big fish speaking for large chunks of Australia’s growing pool of retirement savings.

When last we heard from AustralianSuper it was venting its frustration over the structure of the Future Fund’s bid for the airport assets of Australian Infrastructure Fund (AIF).

AustralianSuper was thinking about calling in the lawyers, but the AIF shareholder set to receive most of the proceeds of the $1.98 billion deal early next month, such a move appears very unlikely.

Stonewall Resources, Shangdong Qixing Iron Tower

Chinese energy player Shangdong Qixing Iron Tower has raised $US300 million ($315.7 million) to purchase a subsidiary of Australia’s Stonewall Resources.

Last month, Shandong reached a conditional agreement to purchase Stonewall Mining, which owns a variety of surface and near-surface gold deposits that are mostly located in South Africa, for $150 million.

Stonewall boss Lloyd Birrell said the capital raising demonstrates that Shandong values the projects in question and is interested in lifting production.

“Their intention to direct substantial funds towards the expansion projects signals they wish to ramp up production within a short timeframe,” said Birrell in a statement.

“It is clear that they have developed an excellent understanding of Stonewall's long-term strategy to feed central processing plants from the vast number of available mines and ore bodies in the mining and prospecting areas.”

Wrapping up

Troubled surfwear company Billabong International sank to an all-time low during yesterday’s session, giving it a market cap of just $76.6 million.

After takeover talks with the Paul Naude-Sycamore Partners and VF Corp-Altamont Capital Consortiums ended without an offer, Billabong entered discussions with the second half of the both of those consortiums about refinancing plans and asset sales.

That was two weeks ago. The more time that goes by, the more the market doubts that Billabong, once worth $4 billion, will get a deal done.

In media, a complaint has been made to the corporate regulator about “unusual trading” in Seven West Media in the lead up to private equity giant Kohlberg Kravis Roberts’ sale of its 12 per cent stake in the company, according to The Australian Financial Review.

Turning to Canberra, the executives of US grains giant Archer Daniels Midland faced a grilling from Coalition MPs over its $3 billion takeover bid for GrainCorp yesterday.

At the end of the day, Australian lawmakers aren’t the primary concern. Everyone’s wondering about what the Chinese Ministry of Commerce will do.

In infrastructure, Industry Funds Management is reportedly considering a bid for the Newcastle coal port, which the NSW government is planning to flog.

IFM has just led the successful push for the $5.1 billion deals for Port Kembla and Port Botany and now The Australian reports that it’s interested in the $700 million Newcastle port, which the government plans to put up for sale next year.

And finally, engineering firm UGL has booked $120 million in new contracts for its global property services business DTX.

The deals include a three-year property management agreement advising Rolls-Royce on its real estate footprint across 20 countries.

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