BREAKFAST DEALS: Echo twist

Echo Entertainment plans a capital raising amidst James Packer's push for control, while Atlas taps Hancock for some infrastructure access.

Echo Entertainment has shifted from an apparent victory over billionaire James Packer on Friday to a reminder of its underperformance on Tuesday – the casino company is apparently looking at a capital raising. In other big news, Qantas Airways boss Alan Joyce looks like he is getting defensive, with advisers called back in. Finally, Atlas Iron boss David Flanagan will have to tread carefully not to derail potential agreements with smaller rivals during discussions with Gina Rinehart over an infrastructure deal, while Nathan Tinkler is reportedly thinking about his next deal, already.

Echo Entertainment, Crown, James Packer

Echo Entertainment is reportedly set to complicate the brinkmanship with billionaire James Packer further with a capital raising, potentially as early as this morning.

According to The Australian Financial Review, the Echo board is believed to have tapped Macquarie Group and UBS for the new share sale.

Attention was diverted from Echo’s ongoing issues late last week with the resignation of chairman John Story, who had been specifically targeted by Packer, and the appointment of director John O’Neill as acting chairman.

Packer was forced to withdraw his nominee, former Victorian premier Jeff Kennett, and welcome the new appointee.

With the revelation that Singapore’s Genting, led by casino tycoon KT Lim, was quietly snapping up less than 5 per cent of the register, some were willing to cast serious doubt on Packer’s attempt to win enough control of Echo to suit his long-term goals without a takeover premium. This suggestion is vulnerable.

Neither of these two developments can address the fact that Echo’s $870 million investment in attracting high rollers has failed to meet the company’s expectations; expectations that were instilled in its register. Packer isn’t going to stop just because his initial PR campaign against the company had a crucial weakness.

It’s also expected that Packer will have talks with Lim in coming days. It’s entirely possible that Lim is buying in because he supports Packer’s play for control.

The capital raising is one of many that the market is expecting amid concerns that credit could dry up as Europe hurtles towards whatever agreement it can muster to save the eurozone – some bumps are expected along the way.

Qantas Airways

Qantas Airways chief executive Alan Joyce mightn't feel badly about the company’s balance sheet, but he is reportedly moved by speculation that the carrier is a takeover target.

The Australian Financial Review reports that Qantas has appointed Macquarie Group as a defence adviser and re-assembled its internal taskforce to prepare for a possible takeover tilt.

It’s not the first time that Joyce has acted like this. The same team was put together last year due to intense speculation that former boss Geoff Dixon was going to lead a posse of investors, including friends John Singleton and Mark Carnegie, to take a strategic stake in the struggling airline.

Dixon has since confirmed the interest and such a move has only become more compelling with the depressed share price.

Turnover in Qantas shares has increased dramatically in recent days, with suggestions flying around that the short-sellers and takeover speculators are having a field day.

There’s a very good chance that private equity players are looking at Qantas with a number of break-up scenarios offering good value.

But as always, the key to a takeover of our national carrier rests more with the Qantas Sales Act and less with the Qantas share price.

As explained in this morning’s edition of The Distillery, Qantas shareholders are tiring of the ‘good company in tough times' story.

Qantas received a timely reminder that its push into Asia in search for greater profitability will be met with resistance.

Cathay Pacific chief executive John Slosar has stated that his airline will compete hard with Jetstar Hong Kong, a joint venture between Qantas and China Eastern Airlines.

Speaking of international rivals, Air New Zealand chief executive Rob Fyfe has brushed off talk that his airline could be interested in restarting alliance discussions with Qantas. Instead, Fyfe looks like he’s keeping his eye on Virgin Australia.

Fyfe said over the weekend that he doesn’t have a problem with Eithad Airways buying 4.99 per cent of Virgin, as long as that doesn’t get in the way of the strategy outlined by chief executive John Borghetti.

It’ll be interesting to see what Virgin says if Etihad secures approval to go to 10 per cent and starts pushing for a board seat, as it intends to do in time.

Atlas Iron, Hancock Prospecting, Gina Rinehart

Atlas Iron chief executive David Flanagan has to play a delicate game in order to help his company graduate into the senior classes of producers.

According to media reports, Atlas is discussions with Gina Rinehart’s Hancock Prospecting about a potential infrastructure deal.

One indicates that it could involve a port access for rail access swap. Atlas’s trump card is that it has port access, which is intermittently thought to attract the attention of BHP Billiton and Andrew Forrest’s Fortescue Metals Group.

But Flanagan has other things to worry about than a takeover offer, which is easy to see when the share price is off 24 per cent this year.

Atlas recently commenced a feasibility study with rail haulage company QR National over another line for smaller and mid-tier producers to use.

Brockman Resources and Flinders Mines, both the subject of recent M&A activity, are thought to be the ones most likely to benefit from a QR deal. It’s said that the Hancock talks are running in parallel with the QR study, which means the smaller producers either have to barrack for the former solution over the latter, or get in on both.

Whatever happens in the iron ore market, Fortescue Metals Group chief executive Neville Power appears to be banking a bit more on it. Power has been wading into the market for FMG shares, a practice that continued into June according to an ASX notice.

BHP Billiton, Rio Tinto

Speaking of BHP, one of the most likely suitors of its diamond business has cast doubt on the miner doing a deal until around the end of the year. The same goes for Rio Tinto.

According to Fairfax Media, Robert Gannicott, chief executive of Harry Winston, told investors in Canada that the process would probably take a while, given that 16 per cent of the world’s diamond supply is potentially up for grabs.

Rumours that private equity firm Kohlberg Kravis Roberts would make a play for the diamond arms of both companies faded in recent weeks. It’s these developments, amongst others, that will have to play out before deals can be sealed.

Gannicott thinks Rio will take at least another six months toying with the management structure of its diamond business before it makes a firm decision on what to do.

Eureka Energy, Aurora Oil & Gas

Just when Aurora Oil & Gas looked like it was getting somewhere with a $107 million bid for US-focused shale gas company Eureka Energy, a possible rival player emerged.

The potential new offer from Lonestar Resources would be a merger in which Eureka is the acquiring party. Eureka directors are reviewing it.

Aurora’s 45 cents a share offer swayed Eureka director Mark Wilson, who urged shareholders to accept in the absence of a superior bid. However, Eureka’s two other directors, Ian McCubbing and Bill Bloking, are unmoved.

Wrapping up

Still in resources news, explorer Elemental Minerals told the ASX last week that it has hired BMO Capital Markets to look at possible strategic alternatives, including a merger to help bring its Sintouka potash site in the Republic of Congo to life.

Meanwhile, The Australian Financial Review believes that Nathan Tinkler is already talking about his next deal. The Whitehaven Coal-Aston Resources deal is barely a month old, but already Tinkler is apparently thinking about how best to use his 21.4 per cent stake in the company, worth $840 million.

Elsewhere, garage door maker Alesco Corporation is at long last expected to release its target statement with an independent expert’s report on the DuluxGroup bid. It’s widely anticipated that the paints company will be knocked back, for now, with $188 million on the table.

And finally, speculation surrounding Queensland builder Watpac has increased following a decision by major shareholder Kevin Seymour, a property heavy hitter, to increase his stake to 14.9 per cent from 14.32 per cent.

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