BREAKFAST DEALS: Fortescue hits back

Fortescue frustrates critics with breathing room on new asset sales, while Western Desert Resources piques Chinese interest.

The iron ore sector is awash with positive thinking this morning after Fortescue Metals Group put a line through the suggestion that it faces a debt crisis, while Western Desert Resources has revealed a Chinese firm is the one behind a takeover offer lodged over the weekend. Meanwhile, Vicsuper is taking Equipsuper’s spot as potential merger partner for Vision Super, Little World Beverages has fallen to Japan’s Kirin Holdings and Biota Holdings’s Nabi Pharmaceuticals deal is meeting more resistance.

Fortescue Metals Group

Well, Breakfast Deals was well wide of the mark.

Far from needing an extended trading halt to sort out its issues, Fortescue Metals Group can carefully consider potential asset sales under the cover of a new debt facility.

The consensus is still that Fortescue would ideally need the iron ore price to rise another 20 per cent or so to truly insulate it from asset sales.

But the new five-year $US4.5 billion debt facility with banker Credit Suisse and JP Morgan means Fortescue won’t be a forced seller anymore. Already the miner has delayed $US1.6 billion in spending in fiscal 2013 and offloaded its Pilbara power station for $US300 million.

The next phase for any asset sales could involve airstrips, accommodation villages, Northstar magnetite deposit and other power stations.

According to The Australian Financial Review, there’s talk that industry players from China might be interested in taking a minority stake in Fortescue’s Chichester or Solomon operations.

Whatever the case, Fortescue founder Andrew Forrest certainly isn’t staring at a capital raising that would dilute his wealth. In fact, yesterday’s 17 per cent share price surge, partly motivated by short sellers covering their positions, boosted Forrest’s wealth by half a billion dollars.

Western Desert Resources, Meijin Energy Group

Sticking with iron ore, Western Desert Resources has warmed the hearts of investors around the country after revealing that it’s a Chinese company that’s after it.

China’s Meijin Energy Group has levelled a conditional $435 million all cash offer, at $1.08 a share.

That represents a 26.8 per cent premium to the last trading price before the deal was announced and a 50 per cent premium to the 30-day volume-weighted average price.

The target’s board says that subject to an independent review, it’ll support the offer in the absence of a better offer.

The share price is trading at a 12.5 per cent discount to the offer price, which is probably a reflection of the conditions on the bid.

They are approval from the Australia’s Foreign Investment Review Board, the Chinese Ministry of Commerce, the State Administration of Foreign Exchange and the National Development and Reform Commission.

Vicsuper, Vision Super

Vicsuper has filled the void for Vision Super left by Equipsuper earlier this year.

According to media reports, the two funds are in early merger talks that would create one of Australia’s largest players with $14.4 billion under management. Vicsuper speaks for $9.5 billion, while Vision Super has $4.9 billion in its tent.

The industry funds sector is attempting to keep costs down, which is becoming increasingly difficult thanks to rising regulatory hurdles.

Vision Super was left stunned earlier this year when Equipsuper abruptly ended merger discussions that had been going on three years.

The Australian’s James Frost makes a good point this morning when he points out that Vision Super has even more incentive to do a deal after revealing in July that it’s staring at a $453 million shortfall in its defined-benefit scheme.

Kirin Holdings, Little World Beverages

In the end, the glass was a little more than half full.

Shareholders in Little World Beverages, the brewer of Little Creatures, overwhelmingly supported the $362 million takeover offer from Japan’s Kirin Holdings – the ‘yes’ vote was 99.97 per cent.

Once approval from the Federal Court has been secured, Little World will follow the path set by our two largest brewers Foster’s Group and Lion Nathan. It’ll be delisted and become a subsidiary of a major international brewer. Lion Nathan is also owned by Kirin.

Little World’s most widely known beer is undoubtedly Little Creatures, but the company has found increasing success with its other drops like White Rabbit and Pipsqueak ciders. The company is just 12 years old.

The offer of $5.30 a share was always going to look tasty to shareholders, with the stock changing hands at $3.79 before the deal was announced, which makes it a 36 per cent premium.

The Australian Competition and Consumer Commission and the Foreign Investment Review Board have already given the deal the go-ahead.

Biota Holdings, Nabi Pharmaceuticals

Nothing comes easy for Biota Holdings.

The small biotech company is trying to orchestrate a backdoor listing on the Nasdaq via a reverse takeover of US-listed Nabi Pharmaceuticals, which is basically a cash box.

It’s not an ideal situation for shareholders to be left with US scrip, but it’s what Biota feels is necessary if it’s access America’s enormously larger market.

The company’s share slid 4 per cent yesterday after Biota announced a new merger structure that would leave shareholders with a larger stake in the new company, which will be carrying less cash than expected.

Nabi shareholders will now collect between $US28 million and $US31 million in cash, which will leave $US27 million left over for the US-listed Biota Pharmaceuticals.

Biota shareholders will receive 81.5 per cent to 85.8 per cent of the company, up from 74 per cent.

Alesco Corporation, DuluxGroup

Alesco Corporation chairman Mark Luby attempted to walk a fine line at the company’s annual general meeting, as frustrated suitor DuluxGroup helped shoot down the garage door maker’s remuneration report.

Luby told shareholders that the garage door maker remains open to a deal with the paints company, which is currently offering $210 million.

"The board wants to keep its options open and will continue to keep options open,” Mr Luby said. Given that Dulux has declared its offer "best and final,” one wonders how many options there are left for Alesco.

At the same time, Luby also expressed confidence to shareholders that Alesco would return to profitability next year, which is in line with the board’s opposition to the Dulux offer.

Central to his argument about the company’s relative performance was the observation that Alesco’s revenue was down 6 per cent in the first quarter of fiscal 2013, while the broader industry was down 10 per cent.

Besides watching the remuneration report and the performance rights resolution for managing director Peter Boyd, Luby was faced with criticism from prominent corporate adviser David Freetham.

According to media reports, the private Alesco shareholder said he is concerned that the company has begun a "Mexican standoff” with Dulux and the company is risking the loss of franking credits by doing so.

Freetham’s critique carries quite a bit of weight, given that he’s a close adviser to BHP Billiton.

Dulux has $2.05 on the table, with $1.90 cash and fully franked dividends from Alesco at 15 cents a share. There are extra franking credits available if the Alesco board concedes.

At present, Dulux will go unconditional on October 1 if it gets majority acceptances from the Alesco register, which will probably happen in the next few days.

Wrapping up

Yesterday the market got to learn who was behind the raid on PrimeAg Australia’s register – Laguna Bay Pastoral Fund.

PrimeAg put itself on the market two weeks ago and the share purchases late last week smelt opportunistic.

As The Australian Financial Review points out this morning, the fund is advised by Jim Rogers, who’s close to the legendary George Soros. Laguna is now holding on to an 11 per cent stake in PrimeAg, which it paid $37 million for.

Meanwhile, Nine Entertainment boss David Gyngell might end up acting as a mediator between current owner CVC Asia Pacific and likely owners-in-waiting Apollo Global Management and Oaktree Capital.

The Australian understands that Gyngell is set to play the peacemaker role this weekend to try to find some kind of middle ground between the valuations placed by the US hedge funds – which want as much control of the network – and the Goldman Sachs/CVC – which don’t want to be bullied out entirely.

And finally, consolidation in the listed investment company sector is gathering steam with Geoff Wilson’s WAM Capital and Premium Investors selling their $300 million merger to shareholders yesterday.

In an investor presentation, WAM said is aiming to crack the top 10 LICs in Australia with the $80 million that Premium has in its corner.


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