BREAKFAST DEALS: Flush desal decision

The NSW government announces a winner for the lease of its desalination plant, while Alesco demands Dulux do better.

The Hastings-Ontario consortium has won the Sydney desalination plant lease for $2.3 billion. The NSW government will use $1.7 billion to pay off debt on the site, while the rest will go to the Restart NSW infrastructure fund, as well as paying investment bankers and advisers. Meanwhile, Alesco Corporation has set the scene for a tough takeover stoush after Dulux Group dropped its bidder’s statement. Things are also tense at Northern Iron, after a confidentiality agreement with possible suitor Aditya Birla Group apparently snapped. Elsewhere, Ten Network has apparently lost an EYE bidder and Optus is heading for the High Court.

Sydney desalination plant, Hastings, Ontario Teachers Pension Plan Board

The NSW government has agreed to lease out its desalination plant in rapid time. The consortium made up of the Hastings management infrastructure fund, Ontario Teachers Pension Plan Board, Utilities Trust of Australia and The Infrastructure Fund have won the 50-year lease for $2.3 billion. The unlucky bidders to miss out on the highly prized regulated infrastructure asset were Industry Funds Management and Spark Infrastructure Group.

The other winners of course are the advisers. Morgan Stanley, Baker & McKenzie and RBC Capital Markets advised the Hastings/Ontario consortium, while Goldman Sachs, King & Wood Mallesons and KPMG helped out the NSW government. They’ll all get a payday.

The value of the deal comes in at 1.15 times the regulated asset base of $2 billion. This isn’t far off comparable deals internationally. If anything, it’s bang on what the government should have expected. It’s been suggested that the reason for the swiftness of the deal – final bids were lodged just over a week ago – is the government wants the funds to be included in the upcoming budget.

Of course, the vast majority of the $2.3 billion will go towards paying the $1.7 billion in debt hanging over the plant, along with the fees to the investment banks and consultants. NSW Treasurer Mike Baird says $300 million will go into the infrastructure fund Restart NSW. The state Labor Party has criticised the sale because of the pittance the government will end up with. True, they’d be asset rich if they didn’t sell the site, but the extra debt would be a problem.

Dulux Group, Alesco Corporation

Alesco Corporation hasn’t slammed the garage door on the $188 million takeover proposal from Dulux Group right away, but the paints company will probably have to do better than $2.00 a share to win the target’s board over.

Dulux’s much awaited bidders statement landed yesterday, with chief executive Patrick Houlihan trying to sell the deal at the current price. "Some of Alesco's largest institutional shareholders have already sold a considerable number of shares to us at the offer price of $2.00 a share," Houlihan said in a statement. Indeed, almost 20 per cent of the register has sold to Dulux at that price.

Alesco was having none of it. A spokesperson for the company pointed to the share price – which has eased from its highs, but is still trading at a 3.5 per cent premium to the offer – as evidence that the shareholders expect a higher offer. The spokesperson also sold Alesco as a cyclical business, arguing that the housing market will pick up at some stage, allowing the company to sell more garage doors.

Aditya Birla Group, Northern Iron

Northern Iron struck a rather grumpy tone responding to a speeding ticket from the ASX. NFE sought a trading halt after the Economics Times reported that India’s Aditya Birla Group had lobbed an indicative, non-binding $500 million proposal, with quotes from an unnamed Aditya executive.

First up, NFE said there was "no foundation” for the $500 million figure, which will disappoint speculators that have thrown down some cash at valuations of $400 million. "NFE is disappointed that, notwithstanding the confidentiality agreement with Aditya Birla Group, confidentiality appears to have been lost”. One wonders if NFE executives will be quite so restrained behind closed doors.

The company added that the strategic review that has been underway since November last year will continue and there’s no guarantee of a transaction taking place.

Ten Network, EYE Corp, APN News & Media

Ten Network has apparently lost the only solid overseas bidder for its outdoors advertising business EYE Corp, giving a much needed boost to Australian bidder APN News & Media in particular. The Australian Financial Review understands that France’s JCDecaux pulled out of the contest, which the paper points out is curious because it doesn’t have any competition concerns. Why not stay in just for the possibility of picking up a bargain?

Whatever their reasoning, that leaves local players APN News & Media and CHAMP Private Equity’s oOh!media to fight it out. EYE has been valued at around $110-$125 million by some analysts, but Citi’s Justin Diddums has suggested that APN could be willing to pay up to $165 million to justify its sale of a 50 per cent stake in its own outdoor advertising business to Quadrant Private Equity.

Optus, Telstra, AFL, NRL

Optus will meet rival Telstra, along with the AFL and NRL sporting codes, in the High Court over its TV Now service that allows users to watch sporting games, which it doesn’t own the rights to, almost live. Optus is appealing a Federal Court decision that concluded that the telco’s service – which allows users to watch games while they’re being digitally recorded on only a slight delay – did not fit the protections afforded to consumers when they’re simply recording a program at home.

At stake is Telstra's five-year, $153 million agreement with the AFL for exclusive mobile broadcast, as well as the ongoing negotiations with the NRL for a similar deal. Optus chief executive Paul O’Sullivan said similar services are available internationally, a confusing point given that this is an Australian legal matter. However, there’s a chance the High Court could be forced to overturn an undoubtedly practical decision by the Federal Court because technology has rendered existing copyright law obsolete.

Kagara, De Bortoli Wines

The decision by Kagara to call in voluntary administrators has reportedly embroiled De Bortoli Wines in another sour investment. According to Fairfax, De Bortoli has over $30 million of investment and superannuation funds wrapped up in Kagara. De Bortoli also became embroiled in the $5 billion collapse of insurer HIH, which resulted in a $14.5 million writedown.

However, before you go concluding that De Bortoli should stick to wine – or at least put some distance between the grog and its investment strategy – consider this. The Fairfax report states that De Bortoli’s 2011 accounts show it forked out $50 million on the sharemarket and made an $18 million trading profit. On paper, that’s more than it makes from wine.

Wrapping up

Bombastic coal billionaire Clive Palmer has reportedly watched a crucial contract for his ambitious China First Coal project fall apart. The Sydney Morning Herald reports that a spokesperson for Vitol, which had agreed to take half the planned $80 billion in coal from the proposed project has terminated the deal. This column is making it a priority to only report on projects that Palmer announces that appear to have a sporting chance of actually getting up – unless he recreates the Hindenburg to fly potential Chinese investors through the Bermuda Triangle.

Meanwhile, Leighton Holdings has capped off a strong week of contract wins with the announcement that it was been awarded $800 million in gas and water infrastructure deals in Queensland. The company said it anticipates the contracts, granted by Australia Pacific LNG – backed by Origin Energy, ConocoPhillips and Sinopec – would create around 1000 jobs.

And finally, a senior executive at Challenger says the fund manager plans to take advantage of the lending gap from the major banks by launching an unlisted debt fund later this year, according to The Australian.