BREAKFAST DEALS: Glencore grip

Glencore and Xstrata get serious about a merger of equals, while Rinehart revives a radio play.

Glencore International boss Ivan Glasenberg, recently dubbed Australia’s second richest person, made no secret of the fact that he wanted Xstrata in his tent when he floated Glencore into the market. It’s nine months since that historic day and Glasenberg has moved with Glencore and Xstrata talking about a possible merger of equals to create a resource house the likes of which could one day challenge BHP Billiton. However, there’s a lot to do in the meantime. Still in mining, the latest theory about Gina Rinehart’s Fairfax plans – which is actually an old one that’s been rejigged – is that the mining magnate will team up with John Singleton for the Fairfax metropolitan radio assets. Meanwhile, engineering firms Cardno and Clough are making deals, with the former launching a capital raising and acquisition and the latter winning a Chevron LNG contract. And finally, news is slowly seeping out of Royal Bank of Scotland that the aim is still for an Asia-Pacific solution.

Glencore International, Xstrata

Glencore International, the world’s largest public commodities trader, has finally entered talks with resources giant Xstrata to buy out the shares it doesn’t already own. Glencore already owns 34 per cent of Xstrata and is in discussions about an all-scrip merger of equals, with the precise details of the share swap still to be decided. There’s the possibility that it could be a nil-premium merger of equals, where shareholders will be asked to accept the value and power of an $US80 billion combined entity, not to mention the estimated $700 million in synergies.

Shares in both companies reacted positively to the news, with Glencore shares up 6.5 per cent overnight and Xstrata gaining 10.5 per cent. Shares in Anglo American rose 2.8 per cent, giving a hint of what could be to come.

If talks prove successful, either Glencore chief executive Ivan Glasenberg or Xstrata boss Mick Davis will head a company that could one day challenge the likes of BHP Billiton for the title of world’s largest resources company. Even if you combine the two firms, there’s still a sizeable gap to bridge to BHP. The first step would be to acquire Anglo American, which Xstrata made a failed tilt for in 2009. The Swiss-based giant has always been rumoured to want another crack.

Glasenberg, who was born in South Africa, has just been rated as Australia’s second richest citizen, behind the increasingly talked about Gina Rinehart.

Gina Rinehart, Clive Palmer, Fairfax

Speaking of Mrs Rinehart, speculation about what her plans are at Fairfax Media with her stake of 13 per cent, a stake that will almost certainly grow. Talk has been rekindled that Rinehart will join forces with her close friend John Singleton and take Fairfax’s metropolitan radio assets. Singleton’s interest in Sydney’s 2UE and Melbourne’s 3AW is well established, and Rinehart is said to appreciate the power of radio in shaping public debate.

If you’ll remember, Singleton’s bid for Fairfax’s assets through Macquarie Radio Network fell over late last year. It wasn’t so much the $300 million price tag that was the problem, but that Fairfax management indicated that the financing arrangements weren’t convincing. Hence it’s unlikely that the radio assets are Rinehart’s only motivation, for if they were, she could simply use her influence or her bank account to ensure Singleton had the firepower to give Fairfax the price they want. Speaking to The Australian, Macquarie Radio Network chairman Russell Tate said they’re still interested in the Fairfax assets.

As if that wasn’t enough, now mining magnate Clive Palmer says he might consider the media ownership game. Speaking to ABC television, the colourful billionaire said any move he made into media would be more ambitious. "Being in Fairfax, providing some service to the community, working with a person like Gina Rinehart sounds very attractive to me. Of course we’d want 30 per cent, not 15, and we’d go much more aggressively to make sure the company got things moving.”

Cardno

Engineering firm Cardno went into a trading halt yesterday ahead of a proposed acquisition and capital raising. The Australian Financial Review has managed to get the details. Apparently, Cardno is looking to raise $106 million in order to purchase US-based ATC Associates. With RBS Morgans fully underwriting the offer, a 1-for-9 renouncable rights issue totalling $66 million will be put to existing retail and institutional shareholders, while new shareholders will get a crack at a $40 million placement – all at an 18 per cent discount.

Clough

Speaking of engineering, Clough chief executive Kevin Gallagher is demonstrating that if the South African majority owner of the engineering contractor, Murray & Roberts, wants to sell they’ll be just fine without them. Clough has just put pen to paper on a $350 million contract with US energy giant Chevron for the Wheatstone LNG project. The contract to assist in the commissioning of integrated float over deck systems, offshore hook-up and start-up will span a period of almost three and a half years and start immediately.

You might remember that a spokesperson for Murray & Roberts said recently that the South African player has been looking at a partial or complete selldown of Clough for some time.

Royal Bank of Scotland

Apparently things are moving a little slowly at the Royal Bank of Scotland because any sale is still hoped to be an Asia-Pacific proposition. The Australian Financial Review understands that local executives still expect the process to be run through relatively quickly but, if a buyer can’t be found for the whole business, then the Australian operations will be sold separately. All four Australian banks are said to have given the business a once over, but ANZ Banking Group and Commonwealth Bank were seen to be the most interested. The newspaper reports that these two have stepped back from bidding.

Wrap up

Shares in rare earths miner Lynas Corp reacted like gold had just been struck yesterday, adding 19.1 per cent. Of course the amply patient company was rewarded with a temporary permit to operate its refinery in Malaysia, a site that has caused some controversy on environmental grounds. As long as Lynas behaves itself, it’ll get that licence made permanent in two years. The run up yesterday brings total gains in Lynas shares over the last 10 sessions to an astonishing 59 per cent.

Iron ore miner IronClad has sealed a sales agreement with Hong Kong resource investment group New Page Investment for its Wilcherry Hill project in South Australia. The deal covers as much as 50 per cent of iron ore production from Wilcherry Hill for the first four years of production.

Still in mining, Colorado-based gold miner Newmont Mining is apparently close to picking a buyer of its coal assets in Queensland. News Limited reports that Newmont is in advanced talks with two foreign buyers for two assets, the Felton East/West site and the Lochbar/Bringalily South tenements, both of which remain undeveloped.

And finally, The Australian Financial Review understands that Ironbridge Capital is one of the private equity players thinking about a secondary buyout of CHAMP Private Equity’s International Energy Services.

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