BREAKFAST DEALS: Gloucester glee

Gloucester Coal shareholders celebrate a well-priced sale to a Chinese giant, while ANZ looks set to swoop on European frailty.

Gloucester Coal shareholders have only Chinese regulators to wait on before their $8 billion merger with Yancoal Australia becomes official. Although, in the six months that have transpired since the deal was announced the coal price has cooled and some believe the Chinese have overpaid. Meanwhile, Brambles has called off talks for a big deal and raised capital instead. Seek has done the latter and some would argue would be well advised to do the former. Elsewhere, James Packer says he’s got nothing but time for unseating Echo Entertainment chairman John Story and ANZ Bank is being encouraged to make an Asian purchase so Mike Smith can secure the ‘regional superbank’ future he envisages.

Gloucester Coal, Yancoal Australia

Gloucester Coal shareholders enthusiastically embraced the 'merger' proposal from China-backed Yancoal Australia, with almost 100 per cent of them getting behind the $8 billion deal.

The Australian coal company’s shareholders will receive $3.15 in cash and 22 per cent of the merged company, while Yancoal Australia, owned by Chinese giant Yanzhou Coal, will take the remaining 72 per cent. As such, Yancoal will dominate the board.

The complexity of the deal, effectively a takeover via merger, has made firm valuations harder to come by. But the early signs are that China’s largest single foray into the Australian coal sector has been a good deal for Gloucester and a bad deal for Beijing.

Independent expert Deloitte has valued the bid as high as $9.48, but analysts appear to have settled on something closer to $8.70. Gloucester shares finished trading yesterday around six-month lows at $6.75.

Gloucester and Yancoal announced the deal just before Christmas, when Port of Newcastle thermal coal was trading at $US121 a metric tonne. Since then, Australian coal prices have come off 11 per cent. Gloucester shares have fallen much harder, shedding 22 per cent since April.

However, imagine how it might have looked if China had tried to play hardball on the price for Gloucester. Consider the history of Felix Resources.

Felix was acquired by Yanzhou in 2009 with a number of conditions that Yancoal was supposed to meet by the end of this year. In March, Treasurer Wayne Swan approved Yancoal’s takeover of Gloucester and gave the Chinese-owned company more time to meet those conditions.

While the price mightn’t be ideal for Yancoal, and more broadly for China, in isolation it secures supply of a commodity that the emerging economics powerhouse needs desperately in any case to meet its rising energy needs.

The deal is set to create Australia’s largest independent coal company. With the Australian Foreign Investment Review Board giving the green light, all we’re waiting on is approval from Chinese regulators.

Brambles, Recall, Seek

Brambles boss Tom Gorman told shareholders yesterday what they’d been coming to expect from the pallet-making giant for some time – the sale of US document management business, Recall, has been called off.

Brambles said the search for a buyer – conducted by UBS and Bank of America-Merrill Lynch – failed to turn up an offer of "appropriate value of certainty”. Brambles was seeking a bid of at least $2 billion.

Media reports indicate that the two final suitors were private equity firms Apollo Global Management and Birch Hill. Given the quality of the Recall business, the tone of market at the moment and the opportunistic tendencies of the bidders, Brambles is correct to hold on to the asset. The cost of not selling the non-core Recall is $25 million, but the business is quality.

While the pallet company’s shareholders might be disappointed at the outcome, they’d be happy to have missed out on the trading session yesterday that saw $22 billion wiped from the market.

The reason Brambles avoided the pain was the company announced a $450 million capital raising, putting its share in a trading halt. The pallet company is going for a 20-for-1 rights issue at $6.05 a share, which is an 11 per cent discount. UBS and Bank of America-Merrill Lynch have picked up the work here as well – presumably Brambles understands that realities of their failure to get Recall away and is happy to keep working with them.

The rights issue is being conducted to take the place of the underwriter dividend reinvestment program in order to finance the $1.3 billion IFCO acquisition that was completed two years ago.

But with the sickening spectacle of Europe in mind, the Brambles move has rekindled the market’s memories of big Australian corporates raising money while they could before the global financial crisis rendered such moves exorbitantly expensive or impossible.

Jobs website Seek is going the same way. The online player’s shares slumped 3.1 per cent to $6.51 as it announced the issuance of subordinated notes at $100 a piece to eligible shareholders. A bookbuild will be conducted for retail brokers and institutional investors.

Seek said the funds would be used to repay part of its existing debt facility, diversify its funding portfolio and further internal investments.

While Seek is raising capital, we’ll have to see if the online jobs site goes the same way as Brambles and does the prudent thing by putting the float of its majority-owned Chinese site Zhaopin on ice for a while. It’s reportedly scheduled for "later this year”.

Seek to some extent has to take into account the wishes of Zhaopin part-owner Macquarie Capital. However, given the state of equity markets and the terrible aftermath of the Facebook IPO – which hovered around $US27 overnight, well down on the $US38 issue price – this isn’t the time to be thinking about floats, particularly on the Nasdaq.

Echo Entertainment, Crown, James Packer

Billionaire James Packer has made it clear that he’s planning for a two-punch combo to take out Echo chairman John Story and install his nominated contender, former Victorian Premier ‘Bloody’ Jeff Kennett.

According to The Age, Packer says if his attempt to unseat Story doesn’t succeed at the extraordinary general meeting on July 20, he will try again.

"I am determined to keep going on this. I hope Echo shareholders support us,'' he said, according to the newspaper. "But if we don't succeed this time, we'll go again. I am confident of regulatory approval, after which we can buy some more shares.”

Investors are also having to contend with speculation surrounding the share sales in Echo late Thursday and Friday covering about 4 per cent of the register.

Packer can’t build his stake beyond the 10 per cent Crown already has – unless regulatory approval is secured, which Packer is evidently confident of – and was quick to reject suggestions that the company has continued to build on its ‘stock borrowing’ arrangement with Deustche Bank.

So who’s buying the stock? If it’s a player close to Packer’s circle, that’s a bad story for Echo’s chairman.

ANZ Bank

ANZ Bank chief executive Mike Smith, to some extent, has been waiting for this moment. Smith's super-regional bank strategy for ANZ, complete with a target of 25-30 per cent of earnings from Asia by 2017, would be greatly aided if a European bank or two would fall over and jettison some Asian assets.

According to The Australian, Nomura analysts have argued that exactly this needs to happen for the target to be achieved.

"While European bank deleveraging creates an opportunity for market share gains in the Asian region, we understand the competitive dynamics remain intense, with highly liquid Chinese and Japanese banks looking to grow market share,” Nomura’s Victor German said in a note to clients, according to the newspaper.

ANZ has stakes in a suite of Asian banks, including China’s Shanghai Rural Commercial Bank, Indonesia’s PT Panin Bank and Malaysia’s AmBank. Smith also stated in March that ANZ is looking for bigger operations in Burma, Thailand, Korea and Japan, as well as parts of the Middle East, but not through acquisitions.

Nomura calculates that without an acquisition, ANZ’s Asian arm would have to book earnings growth of 19-25 per cent each year to reach the bank’s regional earnings target.

That feels ambitious in the current climate and Nomura is right to point out that the easiest avenue for ANZ is a distressed asset sale.

However, Smith made those comments when the Euro Stoxx 50 index was above 2600 points. Last night, it was below 2100 points.

That’s a lot of stress and Smith knows there’ll be opportunity in Europe.

Qantas Airways, Roy Hill

Qantas Airways is reportedly positioned to pick up some much needed revenue from Gina Rinehart’s Roy Hill iron ore site in Western Australia.

According to The Australian Financial Review, Qantas is ahead of fly in-fly out specialists Alliance Airlines and Skywest to pick up a lofty contract with the Rinehart site. A spokesperson for the airline declined to comment on the report.

Roy Hill is of course the infamous project granted permission to import foreign workers on 457 visas to make up for an apparent lack of willing, local labour. The report says Qantas could be required to fly in some of those international workers for Roy Hill.

Presumably, such a deal would fall under the airline’s newly created international arm, while the domestic division would handle the flights for domestic workers.

Given the struggles that Qantas chief executive Alan Joyce has faced turning the airline’s international arm around, at least someone other than Rinehart could have reason to celebrate the importation of foreign labour.

Wrapping up

Transpacific Industries Group could be set to launch a bid for Thiess Waste Management after revealing that it is in the early stages of due diligence. The Australian understands that Transpacific has been interested in the unit since March and has Macquarie Capital in tow advising.

Meanwhile, embattled construction company Becton Group has watched Mariner Corporation and Telopea Capital Partners pop up on its register.

The two grabbed 19.95 per cent each after Australian Capital Reserve – or more accurately its liquidator – sold its 49.9 per cent of Becton. There were whispers that Mariner might be having a look at taking Becton outright, but attention is centred on the debt-laden group’s new room to talk with its bankers.

And finally, administrators of Hastie Group have sold the first asset from the collapsed firm. The management of Cooke & Carrick, a plumbing company from Victoria, has picked up control of the company, ensuring that 134 people keep their jobs.

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