BREAKFAST DEALS: Eyeing AustraLand

Potential suitors eye AustraLand's strong profits, while Marubeni's stake in Millmerran power station may be up for grabs.

AustraLand delivered a strong set of numbers, with signs of more to come, as a potential bidding partner stumbled a little. It’s a strong position right at the beginning of the A-REIT M&A revival. Queensland’s Millmerran power station could be in for a change in ownership structure as a Japanese investor looks to sell out – pre-emptive rights could play a big role. Meanwhile, Whitehaven Coal’s problems with the feds will be an irritant to Nathan Tinkler, Sundance Resources might have some reason to hope (really?) and Virgin Australia’s Tiger Airways deal could go either way with the ACCC.

AustraLand, Mirvac Group, GPT Group

AustraLand managing director Bob Johnson played a straight bat to questions about the real estate investment trust’s status as a takeover target when asked yesterday.

Johnston, who was happy to report a 28 per cent jump in profits for the full-year results, told analysts he wasn’t surprised that suitors were interested.

"We’re a quality business. You can see from the result we continue to show significant improvement,” said Johnston. Further earnings growth is expected in 2013.

AustraLand knocked back an offer from GPT Group for its commercial, industrial and investment property business – in effect, everything except the residential stuff – as the target wasn’t interested.

That’s not to say that AustraLand isn’t on the chopping block, far from it. Majority shareholder CapitaLand (of Singapore) has put its stake up for review (‘we’ll sell at the right price ladies and gentlemen’).

Mirvac Group is also reportedly interested, though it doesn’t have the balance sheet for a tilt without some borrowing and has some troubles of its own.

New chief executive Susan Lloyd-Hurwitz was forced to wear a $273.2 million writedown on Mirvac’s residential business thanks to bad weather and weaker sales numbers.

The total writedowns for the group over the last five years now come to almost $1 billion.

Those other investment businesses from AustraLand could come in mighty handy right about now.

Marubeni, Millmerran power station

The existing stakeholders in Queensland’s Millmerran power station could get an opportunity to grab an extra 30 per cent of the asset with Japan’s Marubeni tapping Rothschild to shop its stake around.

Media reports indicate that Marubeni looks to have distributed information memorandums for the stake and it’s expected that shareholders Intergen, Huaneng Power Commercial and China HuaNeng Group probably hold pre-emptive rights.

This means that Marubeni can solicit interest from other investors and all one of the aforementioned three have to do is match the offer and the stake is theirs.

This is the second such sale of a coal power asset. In February last year, Tokyo Electric Power offloaded its interest in Victoria’s Loy Yang A power station to AGL Energy.

The Australian Competition and Consumer Commission gave the deal the green light, but did say it has concerns for the Australian electricity market and left the pretty strong impression that future deals would be closely scrutinised.

Whitehaven Coal, Nathan Tinkler

A deferred decision by the federal government on Whitehaven Coal’s now widely known Maules Creek project sent the company’s shares down 5.3 per cent during yesterday’s session.

After a brief reprieve above $3.50 during parts of January, Whitehaven stock is now heading back towards the levels reached during November last year when major shareholder Nathan Tinkler faced the ‘liquidity event that never was’ with key lender Farallon Capital.

While the young coal tycoon appeared to have escaped judgement, reports that he’s $700 million in debt when his current stake in Whitehaven is worth less than $600 million puts the latest delay to the Maules Creek project, which came into Whitehaven via Tinkler’s Aston Resources, into perspective.

After lengthy delays winning the New South Wales government over, Federal Environment Minister Tony Burke has delayed the decision on the mine for the third time since December.

Maules Creek probably won’t start production until 2015, which is two years overdue. Whatever Farallon is thinking in relation to Tinkler’s stake, the point at which a key Whitehaven asset will deliver on its promise is getting further and further away.

Decision day is now slated for April 30, although there’s an election on the horizon so a fourth delay isn’t that much of a stretch of the imagination.

However, it will be a test of Whitehaven’s patience and perhaps that of Farallon.

Sundance Resources, Sichuan Hanlong Mining

Shares in Sundance Resources will begin trading again this morning for the first time in two weeks amid tentative hopes that a path for its long-awaited $1.4 billion takeover by Sichuan Hanlong Mining might finally have been revealed.

Sundance announced yesterday that China’s immeasurably important National Development and Reform Commission has extended its provisional approval for Hanlong to proceed with its bid by six months.

The African-focused iron ore miner also said that Hanlong must win the support of a Chinese partner in order for the state-run China Development Bank to tip in the necessary funding.

There’s been talk for some time that Hanlong might bring in a partner for this deal anyway, given that it’s efforts to secure approval have hit so many apparent dead ends.

The Australian Financial Review suggests that Wuhan Iron and Steel will be the partner named, with a strong likelihood that Sundance’s prized Mbalam iron ore port and rail project straddling Cameroon and the Republic of Congo would be married with Belinga iron ore project in Gabon.

Virgin Australia, Tiger Airways

The consumer watchdog doesn’t like the idea of Virgin Australia taking a majority stake in Tiger Airways because it would effectively return Australia to an aviation duopoly.

That’s the broad line from the Australian Competition and Consumer Commission, which issued its preliminary view on the $38 million deal yesterday.

Tiger is currently owned by Singapore Airlines, a partner of Virgin. If Virgin secures control of Tiger, the logic goes, Australia would be back to two airlines in effect.

However, Tiger is a real problem for Singapore and the operation is losing money. ACCC chairman Rod Sims said the competition regulator was well aware that the same duopoly could emerge if Tiger simply left the market.

"This would be highly relevant to our assessment,” he said.

It’s not a distant possibility. Tiger has lost more than $200 million since first launching in Australia. The ACCC would be aware that this is unsustainable.

This is always the delicate balance that the consumer watchdog has to play in many of its takeover decisions.

Indeed, it’s the same line that Qantas used for its argument for the Emirates alliance.

Qantas argued that its European flights were unsustainable and that unless the Emirates deal was approved, it would eventually move away from servicing those markets. In effect, blocking this deal in the face of slight competition losses will result in a catastrophic loss of competition.

It’s known as the ‘failing force’ argument and The Australian’s Bryan Frith, who’s an encyclopaedia on everything M&A, writes that the ACCC is showing signs of being more amenable to this argument than it has been in the past.

Wrapping up

Elders is believed to be close to offloading some more timber assets as due diligence continues with its automotive business, according to The Australian Financial Review.

The newspaper also understands that Macquarie tried to rope in Canadian giant Agrium into the race.

And finally, Macquarie Bank and French asset manager Tikehau have thrown the funding in for Oaktree Capital’s purchase of a wastewater company in Finland called Evac Oy, according to The Australian.


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