BREAKFAST DEALS: Goodman fielding?

There are hints Goodman Fielder may become the next retail target, while Wesfarmers reportedly casts an eye over spin-off possibilities.

The Coles turnaround has been something to behold and given the amount of debt that Wesfarmers took on to purchase it when it did, to even contemplate that it turned out to be a success is a small miracle. But the company’s conglomerate model has been under serious question for some time and a few investment bankers are reportedly coming up with some ideas to unlock some value. Meanwhile, it’s a private equity party with Billabong International, Pacific Brands and Spotless Group proposals all on the boil, with some pointing to Goodman Fielder as the next frontier. And finally, Yancoal Australia is bogged down in complex talks with the Foreign Investment Review Board, throwing into doubt the timing of the Gloucester Coal independent expert’s report.

Goodman Fielder

With private equity up and about through the interest in Billabong, Pacific Brands and Spotless, the question then becomes, who’s next? Bread-maker Goodman Fielder has been put forward as a takeover target for some time and it appears the investment banks are starting to back the theory. The Australian Financial Review reports that Goldman Sachs and Credit Suisse are buying the ‘Goodman as a target’ theory, with the former including it as a reason to purchase the stock. Which is just as well because after reporting a 77 per cent plunge in interim profits last week, the company’s got some cuts to heal.


Western Australian conglomerate Wesfarmers is struggling to convince the market that its model is still relevant. Its coal business isn’t generating the returns that it should, given the capital investment, and the same can be said about its insurance division, which seems neither here nor there. While there’s no sign that chief executive Richard Goyder is looking to change track, apparently there’s some work going on behind the scenes.

The Age believes that a handful of investment banks are working on a number of scenarios to unlock some value at Wesfamers. The proposals that have been raised include spinning off Bunnings, splitting the company in two, selling Target or Kmart, or indeed those underperforming insurance and coal divisions. The newspaper also believes that Wesfarmers itself is casting an eye over the senior management at its troubled arms.

Billabong International, Triatlantic Capital Partners, TPG Capital

Billabong International has left the door open for chats with any suitor, but its decision to sell half its stake in US watch and accessories brand Nixon means the ball is in the court of TPG Capital. The private equity firm lodged its $766 million proposal three days before Billabong signed its deal with Triatlantic Capital Partners that will see a 48.5 per cent stake Nixon go to them. Billabong also announced plans to close about 150 stores worldwide.

The question now begs, what will TPG do about it? Selling a large chunk of its most profitable business will dilute earnings for a future owner, so there’s the case to be made that TPG shouldn’t go higher. Then again, Billabong’s deal with Triatlantic values Nixon at $US464 million, which isn’t bad when you consider that Billabong has a total market cap of $666 million – boosted by 46 per cent on Friday thanks to a mixture of these two bits of news.

Pacific Brands, Kohlberg Kravis Roberts

Pacific Brands (PacBrands) says things could be looking up, with Kohlberg Kravis Roberts not the only one checking the clothing maker’s seems. Handing down an admittedly nasty set of numbers late last week, the company revealed that since KKR made its approach, it has received calls from a number of other parties. Of course, PacBrands kept quiet about who they are, but it’s quite possible that TPG Capital is one of them given earlier reports that it had spoken to a syndicate of banks about a $580 million play for the company.

PacBrands chief executive Sue Morphet has worked hard trying to reposition her clothing company for the new world of cautious consumers, unfavourable currency differentials and online competitors – and copped a barrage of criticism at times while doing it. But Morphet had to hand down a set of numbers that reminded investors why the company’s share price is down over 37 per cent over the last month and why suitors think there’s an opportunity here.

Spotless Group, Pacific Equity Partners

In strangely similar circumstances, Spotless Group offered the market another reminder of why some investors want to cash out by flogging the services company to private equity firm Pacific Equity Partners (PEP). The company reported a 5.2 per cent drop in first half profit to $17.4 million, with its transformation program still a while away from completion. Nonetheless, Spotless reassured its full-year guidance as it reluctantly hands the keys to its data room to PEP.

Spotless is supposed to be letting PEP take a proper look under the hood sometime this week, possibly as soon as today. PEP currently has $2.68 on the table and while private equity is not known for increasing bids willy nilly, Spotless chairman Peter Smedley will be hoping that the private equiteers discover something compelling in the books to elicit a bid closer to his board’s $2.80 target.

Gloucester Coal, Yancoal Australia

It doesn’t look like Gloucester Coal will be able to release the independent expert’s report on its proposed $8 billion merger with Yancoal Australia by its scheduled date. It was initially hoped that Gloucester would hand down the report by the end of February, but the Foreign Investment Review Board is taking its time working through the details of the proposal and The Australian Financial Review says the expectation is the report will be held back.

FIRB is usually a ‘yes’ or ‘no’ proposition, but Yancoal’s situation is complicated to say the least. Yancoal, owned by Yanzhou Coal, acquired Felix Resources in 2009 for $3.5 billion under the condition that it would float at least 30 per cent of its assets by the end of 2012, keep all those assets in the Yancoal tent and maintain a 50 per cent stake in each of them. With Yancoal hoping to get FIRB to relax these conditions and all of them capable of playing a part in the Gloucester proposal, the independent directors will need to know what FIRB says before they can say anything meaningful about the bid.

Wrapping up

APN News & Media has confirmed that it is in fact in discussions with Quadrant Private Equity – yes, another one – with a $200 million outdoor advertising joint venture on the table. The two are in exclusive discussions with an agreement expected in coming weeks.

Cockatoo Coal hasn’t made much of a peep since announcing that it was in talks with SK Networks about possible asset sales of capital injections. The Australian Financial Review understands that Credit Suisse is asking around about a capital raising of $200 million. The newspaper emphasises that this is not a firm proposal.

And finally, Monadelphous has inked two "milestone framework agreements” with Rio Tinto over its iron ore operations. The deals make Monadelphous the contractor of choice for Rio for the next five years over a variety of tasks that the miner might require for those sites.

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