BREAKFAST DEALS: Emerging Billabong

Billabong is expected to exit takeover talks with discounted offers, while the ACCC is making a mess of Virgin's Tiger courtship.

Today, at long last, could very well be the day that Billabong International shows us what a binding proposal for the company looks like after a procession of indicative proposals. Hopes are dimming that Virgin Australia’s deal with Tiger Airways will go ahead in the end. Meanwhile, Telstra has won some love from the ACCC as the Adam Internet jostling continues, Leighton Holdings has gotten its telco assets away to a big Canadian and Gina Rinehart’s Roy Hill builder has revealed itself.

Billabong International, Paul Naude, Sycamore Partners, VF Corporation, Altamont Capital Partners

Billabong International could emerge from a trading halt as soon as today with media reports indicating the board was locked in discussions over the weekend.

Bidding consortiums Paul Naude-Sycamore Partners and VF Corporation-Altamont Capital Partners had initially proposed indicative offers of $1.10 a share.

By all accounts this is likely to have been lowered, the question is how far. Some analysts believe Billabong won’t attract more than 80 cents a share. The share price last changed hands at 73 cents.

No doubt there are some shareholders on the embattled company’s register that would love to get the hell out of there at any price.

One possible detail beyond the headline price is whether determined co-founder Gordon Merchant, who controls 15.7 per cent of Billabong, is allowed to spin his ownership into the company.

Virgin Australia, Tiger Airways

Will it be Virgin Australia that kills its bid for a 60 per cent stake in lowest-cost airline Tiger Airways, or will it be the consumer watchdog?

It feels like we’re getting to that stage. Speculation is increasing that the longer the Australian Competition and Consumer Commission takes on the proposal, the more likely it will be that Virgin boss John Borghetti torpedoes it. Tiger is a mess. The messier it gets, the more time and money it will take to clean up.

Commonwealth Bank analyst Matt Crowe has also claimed that there’s a “significant risk” the ACCC could block the proposal.

Crowe’s note to investors points out that the consumer watchdog is well within its right to ask, if Virgin is convinced that Tiger has a good chance of removing itself from the Australian market, why would it bother paying it for its market share?

It’s a fair point and illustrates the biggest flaw in the ‘failing force’ argument.

But it takes time to assume someone’s market position – that doesn’t happen overnight.

Additionally, it’s a leap to assume that Virgin would simply take every Tiger seat out of the market. Qantas is competing with Virgin more and more for low-cost seats via Jetstar (everywhere really, given the capacity wars).

Telstra Corporation, True Local, Adam Internet

Telstra Corporation is also thought to be on the wrong side of the consumer watchdog’s thinking when it comes to its purchase of Adam Internet. But at least it has some other good news to boast about.

The ACCC announced last week that it will not oppose the telco’s acquisition of True Local directors from News Limited, the publisher of this website, in order to try to rekindle the fortunes of its Sensis business.

The reason is the sheer power of the world’s biggest search engine.

“The merged firm would likely be strongly constrained by Google and its myriad of products that are increasingly replicating the online business directory listing model,” the ACCC said in a statement.

“The constraint imposed by Google is being driven by technological change and consumers’ increasing preference to obtain business information through Google in the first instance.”

But progress is harder to come by with Adam Internet, which the telco is understood to have bid $60 million for.

The ACCC was due to hand down its decision on the South Australian internet service provider on February 7, but suspended the review on January 29 following a request from Telstra. That’s a sure fire sign that things aren’t going your way.

“We will continue to engage with the ACCC and we're confident we can work through any concerns in a timely manner. Telstra and the ACCC need more time to consider the issues raised by the statement of issues,” a Telstra spokesman said at the time.

Leighton Holdings, Nextgen Networks, Metronode, Infoplex, Ontario Teachers’ Pension Plan

The push by the big Canadian retirement funds into the Australian market has officially recommenced in 2013 with the Ontario Teachers’ Pension Plan taking a 70 per cent stake in Leighton Holdings’ telco businesses.

Leighton will retain a 30 per cent stake of a joint venture with the sovereign wealth fund that will contain its fibre company Nextgen Networks, data centre arm Metronode and cloud provider Infoplex. The Australian construction giant will collect $619.5 million, valuing the three businesses at $885 million.

OTPP beat out seven other bidders in the final round.

The Canadian pension funds have been making some encouraging signals about potential Australian investments in recent months. In late January, senior vice-president in charge of global infrastructure Stephen Dowd said Australian infrastructure is particularly attractive.

“We are a global investor and we look to numerous markets across the world, but we do find Australia is one of the attractive ones that we want to pay attention to,” said Dowd.

Roy Hill, Samsung Group, BHP Billiton, Rio Tinto

Korean giant Samsung C&T has announced that it has won the $5.6 billion construction contract with Gina Rinehart’s all-important Roy Hill iron ore project in the Pilbara.

The deal with Roy Hill Holdings, majority owned by Rinehart, covers the open cut mine, the ore processing facility, the 340 kilometres of railway and the infrastructure at Port Hedland.

It’s a big deal, but the news had already broken on March 20 that Samsung had beaten out POSCO Engineering & Construction. This makes it official.

Now the financing the $10 billion project needs to be put in place.

Wrapping up

The Medibank Private privatisation push is building. The Greens have indicated some highly qualified support, specifically the proceeds would need to go to the health sector.

But former Medibank Private chairman Paul McClintock has called the government ownership an “aberration” in this morning’s edition of The Australian Financial Review.

“On the whole, the days of having government-owned enterprises in highly competitive markets is well and truly over and Medibank is an aberration,” McClintock told the newspaper.

Qantas has gone, Commonwealth Bank is gone, everyone would think it’s extraordinary that they would be government-owned.

Could’ve picked a better example of a competitive market than Commonwealth Bank. Perhaps, Telstra? Hmm, government privatisations don’t always go smoothly.

Meanwhile, Fairfax Media reports that Cromwell Property Group will put sale offices in Sydney and Melbourne up for sale, bringing the total assets on the block at the moment close to $2 billion.

Elsewhere, BlueScope Steel and Nippon Steel & Sumitomo Metal Corporation have commenced work on their $1.31 billion joint venture to supply Asian-focused whitegoods suppliers, which delivered $520 million to the cash poor Aussie steelmaker.

And finally, Linc Energy shares fell 16 per cent following last week’s announcement of a $200 million convertible bond issue. Given the stock run up in recent months, Linc shareholders will take that slide without question.

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