BREAKFAST DEALS: Genworth shine

Genworth Financial boosts IPO hopes for 2012, while Extract Resources awaits a decision from China.

There’s less than a month left of 2011 and investment bankers would be glad to put a line through a year that was relatively bare of IPOs for a country that boasts perhaps the most stable economy in the Western world. The enemy has been volatility, which, courtesy of the European debt crisis, is threatening to put 2012 off to a bumpy start. But Genworth Financial’s Australian arm is reportedly speaking to fund managers about a potential float sometime next year, which should go a long way to helping the IPO market reclaim some momentum. Another player in need of momentum is Extract Resources, with the deadline for China Guangdong Nuclear to bid for its major shareholder, Kalahari, looming without any word of a firm offer. Meanwhile, Whitehaven and Aston Resources are down to final negotiations, Tully Sugar is barking mad at the administrators of the Proserpine Sugar Mill and speculation is already starting about what Kerry Stokes will do with Coates Hire, now that he’s got major shareholder National Hire. Is a float on the cards? Maybe 2012 won’t be such a chore.

Genworth Financial

With investment banks having very little to show for themselves in the way of IPOs as 2011 begins to wind down, the spectrum of worrying possibilities that Europe faces would instil a certain pessimism that market volatility could continue for some time and 2012 will bring more of the same. Thankfully, however, Genworth Financial is giving reason to hope. The US home loan guarantor has already handed some advisory work over to Goldman Sachs for a potential float of 40 per cent of its Australian business sometime next year for around $750 million to $850 million.

According to The Australian Financial Review, fund managers are going to get some briefings on the company from chief executive Ellie Comerford and chief financial officer Anne O’Driscoll over the next two days and there are one or two joint lead manager positions still to be filled. The newspaper believes that a selection of candidates will get to make their case before Christmas.

The IPO market will need the European situation to settle in some way for confidence in floats to return, but there are still a handful of IPOs slated for next year. Thanks to its agreement with the Australian government over the acquisition of Felix Resources, Yanzhou Coal is set to list at least a third of its Australian assets by the end of 2012, which should raise more than $1 billion. And let’s not forget TRUenergy, with its Hong Kong parents said to have appointed Rothschild to advise on a potential float sometime next year. However, one float that was apparently on the 2012 calendar, Boardwalk Resources, looks to be set for a different kind of deal – we’ll get to that in a minute.

Extract Resources, Kalahari Minerals, China Guangdong Nuclear Power Corp

Perth’s Extract Resources could be about to find out whether a likely downstream acquisition from China Guangdong Nuclear Power Corp is going to evaporate for the second time in seven months. Guangdong has been in renewed discussions with major Extract shareholder, the UK’s Kalahari Minerals, over a 233.55 pence per share ($1.8 billion in total) indicative proposal. But Guangdong has to announce a firm intention to bid by December 8. Otherwise talks will again be put on hiatus for six months, unless the UK Takeover Panel agrees to extend the deadline.

Kalahari owns 43 per cent of Extract – Rio Tinto owns 14 per cent, and 11.5 per cent of Kalahari – and under Australian takeover rules it would be compelled to make an offer for Extract. At the moment, Guangdong would be expected to lob a bid around $8.86 a share, valuing Extract at $2.2 billion. Extract shares surged in October when speculation of a bid was emerging but have traded at a significant discount ever since, as investors check their expectations.

Meanwhile, Cameco Corp boss Tim Gitzel, fresh from his defeat in the race for Hathor Exploration at the hands of Rio’s Tom Albanese, says he is unlikely to be tempted into pinching something from Rio’s backyard by making a play for Paladin Energy. In an interview with Bloomberg, Gitzel said the company is still on the lookout for acquisitions, but Paladin isn’t likely to be one of them."We have the same concern about valuation,” he said. "We’ve got some other pieces and projects that we like better.”

Whitehaven Coal, Aston Resources, Boardwalk Resources

Turning to the coal sector for a moment, plans for Nathan Tinkler’s Boardwalk Resources to be floated seem to be on hold, with expectations growing that it will be spun into a merger of equals between Whitehaven Coal and Aston Resources. Things are getting serious between the two coal players, with The Australian Financial Review reporting that talks are now down to final negotiations. And while it's expected that Whitehaven Coal chief executive Tony Haggarty will be the leading man at any merged entity, concerns are growing amongst institutional investors that Tinkler will accrue too much influence from the deal.

Tinkler’s ticket into the merged company is of course his 38 per cent stake in Aston, which he wielded to great effect recently with a management clean-out, vaulting himself into the chairman’s seat and his trusted Boardwalk Resources executive Peter Kane into the boss’s chair. If the merger goes ahead and Boardwalk is ultimately spun into the new company then Morgan Stanley, appointed to conduct the float, might miss out. It’s still unclear whether Boardwalk has entrusted Morgan Stanley with advising it on other proposals, like the Whitehaven-Aston deal.

Proserpine Sugar, Tully Sugar, Sucrogen

Tully Sugar boss Keith De Lacy is throwing absolutely everything at the administrators of the Proserpine Sugar Mill in order to get a chance of snapping up the collapsed miller. Tully, owned by China Oil and Food Corporation, was passed over by the administrators in favour of Sucrogen, formerly owned by CSR and now in the hands of Singapore’s Wilmar International. Tully then increased its offer to $128 million for the mill, which sits north of Mackay, Queensland, but has so far been disappointed with the administrators at KordaMentha.

De Lacy claims that KordaMentha has not offered creditors a comparative analysis of its offer against that of Sucrogen and is calling on the administrators to insert one. "If the administrator fails to fulfill this request, we would expect it to explain to creditors, particularly grower creditors, why this information has not been included in the report to creditors, and why the administrator is not taking into account their best interests,” De Lacy said in a statement.

Seven Group, National Hire, Carlyle Group, Coates Hire

Now that Kerry Stokes has won National Hire, attention can shift to whether Carlyle Group will exit Coates Hire. Tasmania’s richest man, Dale Elphinstone, finally stepped out of Stokes' way and Seven will move to compulsorily acquire the remaining shares it didn’t already own at $3.75 a pop ($192 million in total). Now that National Hire is out of the picture, Seven and Carlyle aren't as hassled on the register at Coates Hire, making an exit for Carlyle a lot easier. While volatile equity markets are derailing all but the most determined players from forging ahead with their IPO plans, this deal mightn’t move along at the speed of light because Carlyle has indicated that it’s happy to keep Coates private for the next year or two.

Wrapping up

Credit Suisse is believed to have won approval from the Foreign Investment Review Board for the event that it has to offload a shortfall in stock in BlueScope Steel from the recent $600 million capital raising, The Australian Financial Review reports. The same newspaper says RBS Morgans analyst Belinda Moore is still recommending investors buy former GrainCorp target Ridley Corporation, despite takeover speculation dying down. The agribusiness is seen as an enticing target at current valuations not just for GrainCorp, but Canada’s Viterra as well.

Elsewhere, The Wall Street Journal reports that analysts believe UGL’s 77.5 million pounds ($119 million) acquisition of Britain’s real estate services company DTZ Holdings won’t pay off in the short term.

And finally in mining, talks between Atlas Iron and India’s NMDC over the sale of the Ridley magnetite project have been rekindled, The Australian reports. In the process, the Indian minerals giant has also brushed off concerns that the mining tax could be a problem for the deal.

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