Breakfast Deals: FKP's candid confession

FKP Property boss Geoff Grady is cleaning up the mess by a YouTube video apparently revealing the end of the company’s demerger plans. "No, no, no – we’re not saying that just yet, people!" Meanwhile, it could be that Woolworths has a year to convince Lowe’s to stick with Masters before having to go it alone. The opposition is building against the bid for GrainCorp, Billabong is still surging despite some shenanigans from its lenders and APA Group boss Mike McCormack shares his pipeline dream.

FKP Property

FKP Property Group chief Geoff Grady has been forced firmly onto the back foot after a video reportedly emerged on YouTube appearing to indicate that the company was shelving its retirement demerger plans.

The company released a statement to the ASX yesterday indicating that this was not the case and that a demerger is still very much a possibility.

“Since the announcement in February 2012 of the retirement strategic review, FKP has been exploring the options for a demerger or other separation of its retirement and development/trust businesses and has confirmed this to the market on a number of occasions.

“FKP continues to explore these options, based on its overall strategy to streamline and focus the business on its retirement operations in the most cost effective way.”

That’s some mighty fine corporate speak right there. FKP went on to say that it’s considering a name change to Aveo.

This statement was in response to a report from The Australian detailing a video apparently made for FKP staff posted on YouTube featuring Grady that racked up over 200 hits before it was taken down.

“We have speculated about doing a formal demerger of the business and probably let the ball fall away a little bit,” said Grady in the video, according to The Australian.

“We talked about a formal demerger of the business and there are a number of reasons that all got a little bit expensive and we decided not to do it.

“We probably made the mistake of not going back to the market and telling them about that.”

While FKP didn’t so much deny anything that was said in the video, Grady did express dismay that the whole story apparently wasn’t told.

“We are disappointed that selective elements of an internal and private staff briefing have been sensationalised, particularly as the report also fails to provide the overall context of the FKP strategy briefing to staff,” said Grady in the FKP statement.

It’s easy to understand why the Brisbane-based property group doesn’t want to snatch the idea of a demerger away from shareholders just yet. Demergers are the bomb at the moment.

Brambles has decided to demerge its US document management business Recall after failing to find a compelling bid for the unit, which could be worth $1.8 billion, maybe more.

This comes on the back of returning concerns at Treasury Wine Estates about the state of the wine maker’s American business.

While the stock is down 16 per cent over the last five sessions, it’s still up 41 per cent since it was spun off from Foster’s in mid-2011.

Woolworths, Lowe’s

In recent days the ongoing speculation about the losses of at Woolworths’ troubled Masters hardware retail joint venture with US company Lowe’s boiled over.

Yesterday, Masters director Melissa Smith tried to reassure analysts and onlookers that the long-term outlook for the business remains bright, while leaving the impression that Woolworths’ rollout of Masters has lacked competence and expertise in certain areas.

The most common phrase to summarise yesterday’s conference call is ‘mixed messages’.

From a deals perspective, the question has always been whether Lowe’s will tough it out in Australia with Woolworths and Masters, or whether it will exercise its put option on its 33 per cent stake in the chain.

At the moment, Lowe’s has extended the put option by 12 months for October next year.

That means the question of whether Woolworths will have to take on Bunnings, and a larger share of the current losses at Masters, alone has been put off by another 12 months.

But just fast forward to July next year in your head for a moment. If Masters is still struggling for whatever reason – it could be ongoing management problems, strong resistance from Bunnings, a sluggish economy, or even all three – questions about the long-term commitment of Lowe’s will be asked again.

GrainCorp, Archer Daniels Midland

Archer Daniels Midland is finding growing opposition from, well, growers.

Almost 300 farmers reportedly threw their support behind calls from lobby group NSW Farmers for new treasurer Chris Bowen to block the US giant ADM from acquiring GrainCorp for $3 billion.

The calls come as a federal Senate inquiry into the proposal led by conservative Bill Heffernan continues in Canberra.

Bowen has the power to block the deal under the Foreign Acquisitions and Takeovers Act. While the Foreign Investment Review Board will get its say, and its advice is usually headed, the treasurer ultimately has the final call.

But with Prime Minister Kevin Rudd reportedly moving towards an election date in late August, Labor could go into caretaker mode within a week.

Hence the urgency from NSW Farmers.

Billabong International, Oaktree Capital, Centerbridge Partners, Altamont Capital

Billabong International shares rallied again yesterday to finish the session at 36.5 cents. That’s up 43.1 per cent in two days.

The surfwear company released a statement to the ASX more or less confirming what the market had suspected of the ‘offer’ put by new lenders Oaktree Capital and Centerbridge Partners.

The short version is that the pair simply came too late, with something too incomplete, for Billabong to work with. The debt they own, which was only purchased in the last month or so at a discount, will be repaid in full by the Altamont Capital deal.

“Not enough!” was the cry from the scorned lenders. Fairfax believes that the US hedge fund debt holders have threatened to “pull the company under” unless they secure a deal with Billabong that will include an upfront payment of $40 million.

Now let’s not carve this story in stone as fact. But take it to be true, it would make a mockery of the hedge funds’ reported “outrage” at the $65 million break fee as part of the Altamont Capital deal.

Wrapping up

APA Group chief executive Mike McCormack pushed his dream of a national gas grid during a speech in Darwin last night, The Australian reports.

“I would be personally disappointed if connection to the east coast grid doesn't become a reality within about a decade,” said McCormack.

“From a security-of-supply perspective it is an important connection.”

APA is of course making a run at Envestra for a $1.3 billion merger deal. It owns 33 per cent of the target.

Meanwhile, one of Australia’s richest men, Paul Fudge, has built a 10 per cent stake in shale gas owner AJ Lucas. At yesterday’s closing price, Fudge’s stake is worth about $33 million.

Sticking with energy, plans are being made in New South Wales for the sale of the national electricity meter arms of Ausgrid and Endeavour Energy.

Things weren’t so hot for WHL Energy, which fell sharply during yesterday’s session after announcing a $60 million farm-in agreement with an unnamed oil and gas company for its Seychelles project had fallen over.

And finally, Calibre Group has picked up service contracts with BHP Billiton and Rio Tinto worth $30 million apiece.