BREAKFAST DEALS: Extract relief

The Perth miner is set to mull a Chinese offer, while Telstra has some thinking to do on the ACCC's NBN rules.

It’s as if a sigh of relief from Perth-based Extract Resources could be heard coming from the east coast as the NSW government overturned a ban on uranium exploration that was decades old. Extract has finally received a formal takeover offer from China Guangdong Nuclear Power Corp, putting an end to a level of uncertainty that’s been present for about a year. Given that it has taken such a long time, Extract won’t be rushed into accepting and is exploring its options, although with 43 per cent Guangdong is sitting pretty. Meanwhile, Colonial First State is reportedly set to announce a $500 million hybrid security, right after ANZ Bank opted for a subordinated note of the same value. Meanwhile, Telstra is getting out the bean-counters to see how much the ACCC’s NBN conditions are going to cost them, one of Ludowici’s suitors is reporting its rival to the Takeovers Panel and today’s the day we find out if Exxaro has managed to secure African Iron.

Extract Resources, Guangdong Nuclear Power Corp

It may have been a long time coming, but Extract Resources won’t be rushed into accepting a takeover offer from the Chinese. At long last, after almost a year of seeing this deal a mile down the road, China Guangdong Nuclear Power Corp has put forward its $2.2 billion takeover offer for Australia’s Extract. The deal comes of course in the wake of Guangdong’s long awaited takeover of Kalahari Minerals, based in the UK, which has a 43 per cent stake in Extract. The unconditional cash offer of $8.65 a share is all about the Husab uranium deposit in Namibia, thought to be a world-class asset.

Extract is urging shareholders to take no action as it investigates alternative proposals. Guangdong is currently being advised by Deutsche Bank for financial matters and Minter Ellison for the legal ones.

Colonial First State, ANZ Bank, Tabcorp

Having watched how capital raising so cruelled investors during the global financial crisis, hybrids and subordinated notes are generating an enormous amount of buzz after Woolworths and Origin Energy won better-than-expected demand for their efforts late last year.

Firstly, Commonwealth Bank’s Colonial First State is reportedly set to announce a $500 million hybrid security offer during the release of its results. The Australian Financial Review carries the story, just the morning after ANZ Bank went for a $500 million subordinated note issue, with Westpac considering a similar move. Earlier yesterday, of course, Tabcorp announced plans to raise $200 million from a new subordinated note to retail and corporate investors as part of its debt refinancing efforts.

Telstra, NBN Co

Telstra chief executive David Thodey will be sitting over a calculator or two over the next few days with his fellow senior executives as they try to figure out just how much the consumer watchdog’s blessing is worth. Yesterday the Australian Competition and Consumer Commission sought to reduce the amount Telstra can charge its rivals to on-sell broadband services so the company can’t grind out competitors as the National Broadband Network is rolled out. If Telstra agrees, it’ll strip tens of millions from its revenue, but the telco will also get the regulator’s signature on the $11 billion deal with the government. "Will someone hand me the scales please?”

Ludowici, Weir Group, FLSmidth

FLSmidth chief executive Jorgen Huno Rasmussen might be about to discover the true meaning of the phrase ‘lose lips sink ships’. FLSmidth has been reported to The Takeovers Panel over comments he made to Reuters indicating that the Danish group would not increase its $210 million offer, at $7.20 cash per share, for Australia’s Ludowici engineering company. UK-listed Weir Group has since come in with a superior $7.92 offer and pushed FLSmidth towards the panel in the hope that it will remove the only declared rival bidder

The question is whether Rasmussen can argue that when he simply answers "no” to a question from Reuters of whether FLDmidth would increase their offer for Ludowici that it was in the context of an already arranged, signed agreement with the company about how the takeover would work and no other rival bidder. However, such a blanket statement could quite easily be taken by the market as a final declaration and therefore would appear to fall foul of the "truth in takeovers” principle of Australian law.

African Iron, Exxaro

It’ll be interesting to see whether South Africa’s Exxaro was able to secure more than 50 per cent of African Iron by the deadline yesterday with its 51 cents a share offer. The signs were good early yesterday morning with a notice to the Australian Securities Exchange indicating that Exxaro had a 44.75 per cent stake in African Iron. The Australian Financial Review understands that Equatorial Resources has not thrown its 19.9 per cent stake in, which sets the tone for how the next two weeks will play out if Exxaro did get over the line.

The offer will be extended by 12 days if the South Africans hit that 50 per cent milestone and then the discussion becomes whether it can reach that 75 per cent barrier, at which point the offer increases to 57 cents a share. The target’s shares closed at 56 cents each so it seems there are a number of investors that are pretty confident this is going to get up.

BHP Billiton, Rio Tinto

Copper might not have had the year many were expecting in 2011, but mining giants BHP Billiton and Rio Tinto have thrown some big money at it as the metal shows more bullish signs early in 2012. BHP and Rio have put up $US4 billion to increase production at the Escondida copper mine in Chile. Of that money, $2.2 billion from BHP and $US1.2 billion from Rio will be used to replace a concentrator at the site with a new plant that will be able to get at higher grade of ore dwelling underneath the existing operation. BHP and Rio will also chip in an extra $US414 million and $US216 million, respectively, on a leaching pad (where precious metals are extracted from ore) and mineral handling system. BHP holds 57.5 per cent of Escondida and operates the mine, while Rio owns 30 per cent.

Billabong International

Embattled clothing company Billabong International might have told the market late last year that an equity raising was not its "preferred option” to secure it’s balance sheet, but as Mick Jagger has said, "you can’t always get what you want” – though it should be pointed out, he usually does. UBS says Billabong needs about $250 million, which could be secured through a strategic investor, offloading brands, slashing the dividend or issuing equity.

There have been whispers that private equity players have touched base with Billabong, but nothing in the way of an approach however, just a friendly call to see how they’re going (badly is the answer). The attention given to Pacific Brands underlines the fact that some in private equity have some cash to throw around and there’s value to be found in Australian retail.

Wrapping up

IG Markets analyst Chris Weston has stuck his neck out to say the mystery player on the Fortescue Metal Group register with 3 per cent – thought to be Teck Resources – could be looking at a takeover. Despite billionaire Andrew ‘Twiggy’ Forrest sitting on the register with more than 30 per cent, Weston thinks that any prospective bidder would be able to find a way through.

The Carlyle Group has reportedly boosted its interest in Australia, with The Australian reporting that the private equity group has picked up inspection services company John Davidson & Associates for an undisclosed amount.

And finally, traffic camera operator Redflex Holdings, once a target of The Carlyle Group and Macquarie Group, could be changing its internal tune about a takeover. Carlyle and Macquarie put up $2.75 a share but the target’s chairman Chris Cooper, and his almost 25 per cent stake, didn’t move. However, the Australian Financial Review understands that Cooper is talking again.

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