BREAKFAST DEALS: Gloucester seal

Yanzhou clears a Gloucester deal, while iiNet picks up Internode – and new scale in the telco wars.

Within the space of just a few weeks, the title of Australia’s largest independent coal miner has jumped around a bit. It transferred from Macarthur Coal when the late Ken Talbot’s old stomping ground passed into the hands of Peabody Energy, to New Hope, which has since begun a sales process. Then Whitehaven Coal stepped up with a deal for Aston Resources. Now, the board of China’s Yanzhou Coal has approved a deal to create an $8 billion coal miner through the merger of Yancoal Australia and Gloucester Coal – the rest is looking like a formality. Meanwhile, iiNet has taken rival ISP Internode in the search for NBN scale. Where does TPG Telecom fit in? Elsewhere, Hastings Diversified Utilities Fund has told shareholders that APA Group’s offer doesn’t stack up, a Macquarie Group-managed fund has gone shopping in the US and rumoured takeover target OneSteel has gone for asset sales and writedowns over a capital raising, and the market loves them for it.

Gloucester Coal, Yanzhou Coal

The board of China’s Yanzhou Coal has approved the merger with Gloucester Coal via its local arm, Yancoal Australia. In a statement from the Chinese coal company Yanzhou said its board had given the green light to a deal that would create Australia’s new largest independent coal miner. According to media reports, Yancoal will give Gloucester shareholders $700 million in cash, $3.20 a share, in exchange for 77 per cent of the final merged entity. So Gloucester shareholders will end up with $700 million cash and a 23 per cent stake in a local company potentially worth $8 billion.

It’s unclear whether that $8 billion figure is accurate, so we’ll have to wait for word from Gloucester for an idea of precisely what the deal is worth to their shareholders. Word is expected early this morning, before trading starts. Given that Noble Group has 65 per cent of the target, it’s looking likely that a deal amicable for both sides has been struck, otherwise the Yanzhou announcement wouldn’t have been made. And if that’s the case, given that Noble owns a controlling stake in the target, this deal looks done.

Yanzhou’s board has been advised by Citigroup, Goldman Sachs and UBS, with legal advice from Freehills, Baker & McKenzie and King & Wood. Gloucester has been advised by Lazard and Noble Group has been speaking to Blackstone Group.

iiNet, Internode, TPG Telecom

iiNet has emerged as the third force in Australian telecommunications at a time when the rollout of the national broadband network is demanding of its participants scale above all else. iiNet boss Michael Malone has picked up rival internet service provider Internode for $105 million in a deal that will create Australia’s second-largest internet service provider.

It’s a cash-and-scrip bid that will deliver 12 million shares to Internode managing director Simon Hackett, roughly a 7.5 per cent stake in iiNet, which is worth $34.3 million on current valuation. The rest will be paid in cash after Internode’s debt and cash on hand is taken into account. Azure Capital and Middletons acted as advisers to iiNet.

The acquisition, which comes on the back of iiNet’s $60 million purchase of Canberra ISP TransACT, will give the combined group almost 900,000 internet subscribers. Now attention turns back to TPG Telecom. David Teoh’s telco sparked speculation that a deal between TPG and iiNet could be a possibility after picking up a small stake in its rival that has since grown to 7.24 per cent.

Hastings Diversified Utilities Fund, APA Group

Hastings Diversified Utilities Fund chairman Alan Cameron has mustered the defence against a $1.06 billion takeover offer from rival gas pipeline owner APA Group. APA is offering 50 cents per share along with 0.326 APA shares, which the suitor says values the offer at $2 a share. That was a skinny 12 per cent premium to the previous trading price so already things felt opportunistic. But Cameron is leaving nothing to chance.

Once distributions on both ends are taken into account, Hastings believes the offer is worth about $1.92, which isn’t compelling at all. As investors prepare to receive a bidders statement, Cameron has argued in a letter to them that the offer doesn’t taken into account the fund’s cash flows, interim distributions or capital gains tax and is also highly conditional. Of course, one of the recipient shareholders of this document will be APA Group, which holds 20.7 per cent of Hastings.

Macquarie Group, WCA Waste Corp

Macquarie Group funds are getting done with some last-minute Christmas shopping, with the latest coming from the US. The Macquarie Infrastructure Partners II has offered $US526 million ($520 million) for WCA Waste Corp, a garbage collection company. The $US6.50 per share offer is a 30 per cent premium to the company’s previous trading price, so it’s unsurprising that the target’s board has unanimously recommended the offer.

This comes right on the back of more Macquarie fund movements in Europe. Earlier this week, the jointly managed Macquarie Renaissance Infrastructure Fund grabbed a $US83 million stake in Russia’s GSR Energy Investments, while last week Macquarie Infrastructure and Real Assets offloaded a 9.9 per cent stake in Britain’s largest water company, Kemble Water.

OneSteel

OneSteel thrilled the market yesterday by staring down speculation that it might be forced to raise capital. Instead, the steelmaker has announced $150 million in writedowns to its LiteSteel Technologies sales and marketing businesses in Australia and the US, as well as the sale of its Australian Piping Systems distribution business for $100 million. The buyer is US-based McJunkin Red Man Holding. The market rewarded the move with a 10 per jump in OneSteel shares. The news comes amid reports from South Korea that POSCO was interested in OneSteel, reviewing the prospect internally.

Wrapping up

QR National and Asciano have both landed haulage contracts with mining giant Rio Tinto for its Queensland coal mines. QR will move 3 million tonnes annually from Rio’s Blair Athol mine, while Asciano will transport 8.5 million tonnes from the Hail Creek and Kestral mines. Leighton Holdings subsidiaries John Holland and Thiess have picked up $300 million in contracts from the Wheatstone LNG project in Western Australia. John Holland will design and construct 12 buildings for the project, while Thiess will build an undersea tunnel between two gas reserves and the plant, which will stretch 1.2km.

Meanwhile, renewable energy producer Hydro Tasmania has sold 75 per cent stakes in two of Australia’s largest windfarms to China’s Guohua Energy for a total of $88.6 million. And finally, shareholders in drilling services company AJ Lucas have voted in favour of recapitalising the company’s debt-heavy balance sheet, with a $150 million raising giving Hong Kong’s Kerogen Capital a 15 per cent stake that could rise to 30 per cent.

*This is the final BREAKFAST DEALS column for 2011. BREAKFAST DEALS will return on January 9.

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