BREAKFAST DEALS: Fortescue fancy

BC Iron speculates on a Rinehart-Fortescue tie-up, while Nine moves closer to a change of hands.

It’s been suggested that Andrew Forrest and Gina Rinehart could be well advised to form a Pilbara alliance by putting Fortescue Metals Group and Roy Hill together. Oh how the iron ore price has changed things! Meanwhile, Nine Entertainment’s lenders are starting to seriously talk ownership change. Elsewhere, Qantas Airways boss Alan Joyce is confident he has a case for the consumer watchdog on the Emirates deal and Rio Tinto has purchased Richard Bay Minerals from BHP Billiton, but the fate of Pacific Aluminium is still up in the air.

Fortescue Metals Group, Roy Hill, Atlas Iron

Despite the fact that analysts across the board expect the iron ore price to recover, headline-grabbing speculation has begun about what will happen if it doesn't rebound enough.

The Australian is reporting comments from BC Iron chief executive Mike Young that Andrew Forrest’s Fortescue Metals Group and Gina Rinehart’s neighbouring Roy Hill deposit could be fit for a merger.

"Because the deposits are the same ore body and there's a railway there... maybe that's something they should be talking about or contemplating,” said Young.

The BC boss is uniquely placed to comment on Fortescue’s situation given the miner’s 50-50 partnership with Forrest’s company for Nullagine mine. But that’s a big "maybe” he’s left there.

The logic of a tie-up between the two has always been there, but only if tough times hit.

The prospect of two billionaires determined to craft a name for them alone in the Pilbara having to share a tent is salivating for Breakfast Deals, but it’s a long way off.

Not only is a price rebound likely to stop this line of speculation dead in its tracks, it’s also worth remembering that jumping into a deal with Rinehart, who is still to get the deposit out of the ground, is not Forrest’s only option.

Reports have recently pointed to Fortescue reaching out to Asian bankers for a $US1.5 billion syndication loan to give it room to breathe while margins are tight.

The prospect of a capital raising has also been tossed between journalists and analysts. While the rationale of an equity issue makes sense, the sticking point would be Forrest, who would not be keen on a move that saw his stake diluted in any way.

Meanwhile, The Australian reports that Atlas Iron is in discussions to its share of the Lake Frome uranium deposit in South Australia.

Thankfully, chief executive Mark Hancock says the company isn’t a distressed seller amid the iron ore price plunge.

Nine Entertainment, CVC Asia Pacific

The owner of Nine Entertainment has reportedly made it official; Nine Entertainment ownership will change hands. In some sense this concession is just a formality.

The Australian Financial Review understands that Goldman Sachs was preparing to put a proposal to Nine’s lenders, most importantly US hedge funds Apollo Global Management and Oaktree Capital, last night.

Goldman holds about $1 billion in mezzanine debt with Nine, while the hedge funds control a majority of the media company’s $2.8 billion in borrowings.

According to the newspaper, the lenders would emerge with 70 per cent stake in Nine in exchange for the debt, while Goldman would end up with 30 per cent.

The investment bank would pass on a small percentage to current owner CVC Asia Pacific, effectively wiping out its original $1.9 billion investment.

While we’re on media news, Fairfax Media chief executive Greg Hywood has drawn a line through a company breakup regarding the newspaper and online property sale division.

According to The Australian, Hywood made the comments on the side of a Bank of America Merrill Lynch Australia Investment Conference in New York.

"We see the integrated media model as being the best for us and for shareholders as it delivers revenue and cost synergies,” said the former Fairfax journalist.

It comes in the wake of comments from Allan Gray fund manager Simon Marais about possible deals in the wake of Nine Entertainment’s sale of ACP Magazines for $500 million.

Marais speaks for nine per cent of the Fairfax register and it should be emphasised that his comments largely dealt with a potential sale of the company’s radio assets, after Lachlan Murdoch secured 100 per cent of DMG Radio.

Fairfax has put the radio assets up for grabs before, but couldn’t find a compelling offer with a price tag reportedly around $300 million.

Whatever the case, Fairfax’s future remains as an independent, integrated media company unless someone sought to secure outright control of it.

Qantas Airways, Emirates

Qantas Airways chief executive Alan Joyce says there is "a very solid case” that consumers won’t be adversely effected by the carrier’s proposed alliance with Emirates.

Australian Competition and Consumer Commission chairman Rod Sims has made it clear that the airline’s deal with the Middle Eastern giant will be closely scrutinised, with the cost of airline tickets the primary focus.

Speaking to ABC TV’s Inside Business over the weekend, Joyce expressed confidence that Qantas will be able to get the proposal past the regulators, saying that competitors were reacting to the mere rumours of an Emirates deal.

"We'll have competition adding more capacity and reacting to Qantas and Emirates working together,” said Joyce.

"I think there are huge positive benefits for frequent flyers, scheduling into Asia and scheduling on the trans-Tasman that we'll be taking the ACCC through.”

Some of the gloss came off the Emirates announcement on Friday with Standard & Poor’s downgrading the flying kangaroo’s senior unsecured debt rating from BBB to BBB-.

The ratings agency said the deal was "a positive development,” but industry risk factors and the length of time it will take for the benefits of the deal to feed into Qantas’s bottom line weighed heavier in its decision.

For his part, Joyce might question what is considered a reasonable amount of time for Qantas International to see benefits from the deal, given the arm posted a $450 million loss last financial year.

Joyce told the ABC that the deal is a great stride "in the right direction” to seeing the international division back in the black.

"We see a path through to this business breaking even by financial year 2015. We do want to make sure Qantas International goes back to profits.”

Rio Tinto, BHP Billiton

It’s been a while since we touched base with Rio Tinto’s attempt to purge itself of those unwanted aluminium assets.

While the Anglo-Australian miner managed to complete its purchase of BHP Billiton’s 37 per cent stake in South African mineral sands miner Richards Bay Minerals for $US1.91 billion ($1.86 billion), there’s been no such luck on Pacific Aluminium.

Chief executive Tom Albanese and departing chief financial officer Guy Elliott turned down their annual rights bonuses earlier this year on account of the $US8.9 billion writedown to the aluminium business. On reflection, the pair got far too little credit for starting a wave of similar moves by big Australian corporate bosses turning down bonuses in the most recent reporting season.

Unfortunately, The Australian reports that new chief financial officer Phillip Strachan has left several analysts with the impression that another writedown will be necessary after a briefing.

Rio Tinto Alcan chief executive Jancynthe Cote said in May that the miner would not be rushed into making a decision on Pacific Aluminium, with a trade sale or IPO amongst the possibilities.

Cote wasn’t kidding. It’s been almost a year since Rio announced that the less coveted assets would be spun off into Pacific Aluminium, with only a plant closure or two to speak of since.

Then again, students of history will recall the asset stake deal with Chinalco that almost went through when Rio was on its knees during the global financial crisis.

At least this time, Rio can wait.

Wrapping up

Paints company DuluxGroup says it will speed up its payments to Alesco Corporation shareholders if they accept the $210 million takeover offer.

Dulux also said its offer will go unconditional if it receives 50 per cent acceptances from the target’s register.

Elsewhere, Goodman Group has added a $US1 billion ($962.7 million) joint venture in Japan to its recent deal in China to exploit the growing need for logistics services.

The company has done a deal with Abu Dhabi Investment Council, with both companies chipping in $US500 million a piece to form the Goodman Japan Development Partnership.

And in finance, The Australian Financial Review has picked up on rumours that Commonwealth Bank of Australia is thinking about increasing its stake in Aussie Home Loans, which currently stands at 33 per cent.

The newspaper said sources point to nothing happening, or even being on the brink of happening. But it’s something to keep an eye out for given the understanding that chief executive Ian Narev has of the business, as he was the bank’s strategy boss when CBA acquired its stake.

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