BREAKFAST DEALS: Echo's risky hand

Echo's leadership transition could the open the door to predators, while Whitehaven tries to dispel the latest Tinkler rumours.

There might be some compelling reasons for Echo Entertainment to look for a new chief executive. But the departure of a director who apparently opposed the decision has underlined a crucial point – changing leaders when you’re being stalked is risky. Whitehaven Coal is fighting perceptions about boardroom upheaval, although it’s difficult to see what Nathan Tinkler would get out of it. Also, Dick Smiths is finally away, while Seven’s rivals have had their say on a bigger CMH stake.

Echo Entertainment, James Packer, KT Lim

The remaining senior figures at Echo Entertainment spent yesterday trying to keep up the impression that the company is choosing to take on a new chief at a time when transition is somewhat organic.

The alternative view is that chief executive Larry Mullin and long-serving director Brett Paton have been dumped at a time when the company can least afford it – when billionaire’s James Packer and KT Lim are circling.

"The board unanimously thanks Mr Mullin for his leadership of the business,” the company said in a statement to the market yesterday.

Where unanimity appears to have fallen away was on the decision to break him loose. It’s widely suspected that Tuesday’s departure of Paton, a key supporter or chairman John O’Neill, was prompted by a board decision to ditch Mullin.

Echo has only recently turned a corner after a period of managerial controversy and poor financial performances.

The Crown and Genting billionaires are sitting on the Echo register waiting for various regulatory approvals to increase their stakes in the company. Packer is about two weeks away from learning whether he can take his stake beyond 10 per cent. It’s broadly expected that regulators won’t stand in his way.

Regardless of which way Echo spins this, the timing of the board’s decision, however wise in light of the company’s long-term strategy, is very badly timed.

Leadership transition can only weaken the confidence of Echo investors at a time like this and make them more amiable to overtures from Packer or Lim.

Whitehaven Coal, Nathan Tinkler

Similarly to Echo, Whitehaven Coal was fighting a public relations battle yesterday over speculation that indebted major shareholder Nathan Tinkler might be planning some replacements for the boardroom.

Managing director Tony Haggarty told Fairfax newspapers, "I’ve not been approached and I've been assured by all the directors that nobody has been approached." Chairman Mark Vaile said the same.

The Australian Financial Review brings readers word that Tinkler has raised the prospect of replacing directors with at least one senior Whitehaven figure.

It’s all to tempting to interpret these unconfirmed signs in the context of Tinkler’s apparent cashflow problems. If he is looking at changes to the boardroom, it’s not necessarily related to his debt problems.

But one wonders what can be achieved if a few directors are replaced.

Tinkler’s net worth is primarily tied to the value of Whitehaven and the company’s shares have plunged in the wake of his own failed attempt to take it private, which the board was not opposed to – and the slumping coal price.

Woolworths, Dick Smith

At long last, retail behemoth Woolworths has rid itself of an electronics chain too small to make sense in its tent given the problems it was causing.

The value of the business has been written down from $450 million to the tepid $20 million that Australian private equity group Anchorage Capital was willing to pay for it.

Indeed, as Business Spectator’s Stephen Bartholomeusz writes: "In effect, Woolworths has virtually given the business away. Indeed, given that the Dick Smith chain has, according to Anchorage, net assets of about $290 million it could be argued it has effectively paid Anchorage to take it off its hands.”

Such a price tag shows how there was a complete lack of bidding tension.

It was originally speculated that JB Hi-Fi and/or Harvey Norman might emerge for some of the scraps of Dick Smith.

This was quickly knocked on the head for a few reasons. But the most important one was that these players are grappling with the exact same problems as Dick Smith – online competitors, sluggish retail conditions.

The low price is a reflection of the risk that Anchorage has taken in purchasing the business. Even at $20 million, there’s a chance that these guys won’t do good business on Dick Smith.

Seven Group Holdings, Consolidated Media Holdings, News Limited

The consumer watchdog will now begin the process of deliberating whether Seven Group Holdings billionaire Kerry Stokes should be allowed a greater slice of Consolidated Media Holdings and, by association, pay TV company Foxtel.

The deadline for submissions to the Australian Competition and Consumer Commission’s investigation into the matter expired yesterday, with The Australian reporting, unsurprisingly, that the rival TV networks had some strong objections to the idea.

Stokes is testing the regulatory waters on whether he can usurp or even rival the $1.94 billion takeover proposal that News Limited has lobbed at CMH.

It’s widely expected that the competition regulator will side with Seven’s rival free-to-air networks and thwart his ambitions.

Private equity and junior miners

The Australian carries a story this morning that gives a solid indication of just how much the resources boom has faded.

Junior miners are being encouraged to seek out private equity as a means of fund their projects.

The source of comments, Pacific Road Capital investment director Lou Rozman, puts a positive spin on it by arguing that private equity is sector that miners simply don’t consider before taking their prospects to market.

"People go off to the stockmarket with an idea for a mining project,” said Rozman.

"(However,) that does not mean that you can't put private equity money to work in the sector."

What must be made clear is this is not the beginning of a shift in attention for private equity like the recent attention on retail that brought Pacific Brands and Billabong International into the spotlight, with speculation also surrounding David Jones and Myer.

Nor does Rozman come close to speaking for the mining sector he’s hoping to attract the interest of.

But, try to imagine this story appearing in a national newspaper six months ago. The concept of a junior miner looking to private equity for support would have been utterly inconceivable.

As long as you could demonstrate your prospects, had the right connections and solid management in place, you were right.

‘Private equity? That’s for the old economy.’

The more ‘traditional’ strategy is the one we’re all accustomed with – tapping China.

Perth gold company Noble Mineral Resources has been rescued by China’s Zhongrun Resources Investment with an offer of between $85 million and $140 million for a controlling stake.

Wrapping up

Elsewhere in mining, Aquila Resources and Brazil’s Vale are on the brink of ending a dispute over the Belvedere coal projects in Queensland that they share via a joint venture.

Aquila told the market yesterday that the two companies have appointed an investment bank to determine valuations.

Gunns Limited chief executive Greg L'Estrange has reportedly been dismissed by the company’s receivers as Chinese investors continue to loom large as the company’s likely saviours.

The Australian reports that L’Estrange was let go yesterday. Other reports indicate that the pace of Gunns’s decline may have quickened once it became clear that it wouldn’t be able to pay the redundancy costs of just 50 workers if it did fall over.

Room has been found between the company’s lenders for the payments, which total around $1 million.

Speaking of fellow fallen companies, Darrell Lea chocolates will be found on the shelves of IGA supermarkets from the end of October under the first deal that’s been signed under the new owner, Queensland’s Tony Quinn.

And finally, boutique advisory firm Greenhill Caliburn will be renamed Greenhill & Co Australia to reflect its ownership by US giant Greenhill.

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