Breakfast Deals: Goyder's coin

Wesfarmers' return to shareholders sparks speculation over its growth opportunities, while Hochtief buys more of Leighton Holdings.

Wesfarmers boss Richard Goyder has returned some coin to shareholders, but that won’t stop him talking about the conglomerate’s willingness to buy assets… even with new capital (we're just talkin’ here). Elsewhere, Leighton Holdings’s majority shareholder Hochtief wants a floating minority shareholding to remain, RHG’s cash suitor has a resurgent cash-and-scrip rival and an interesting dynamic emerges between Intrepid Mines, Finders Resources and Taurus Funds.


Whenever a company has big money in the bank, analysts and investors will badger them for one of two things – capital returns or acquisitions. Wesfarmers boss Richard Goyder says the company is capable of both.

Wesfarmers unveiled a $579 million capital return yesterday at 50 cents a share, which is a move that immediately sparked speculation the company is running out of areas of growth to invest in or that it’s putting acquisitions aside for the moment.

Goyder said in a conference call that the conglomerate would not hesitate to raise capital if the right acquisition comes along.

Whenever the Wesfarmers boss talks about this topic, it makes news. Goyder has been happier to talk about acquisitions over the last 12 months, but from what this columnist can tell, this is the first time he’s started mentioning capital raisings to pay for them.

Remember, it wasn’t so much the $19.3 billion splurge on Coles that put Wesfarmers under pressure a few years ago. It was the fact that the deal was done just before global financial markets blew a gasket and Wesfarmers was forced to raise $3.7 billion via a deeply discounted entitlement offer to get its debt under control.

The fact that Goyder can talk about raising debt is significant in the context of Wesfarmers’s recent history.

But analysts are convinced that the capital return shows Wesfarmers won’t be doing a significant acquisition in the near to medium-term. Goyder’s preparedness to publicly keep all options open is just good chief executiveology.

The terrible results from discount department store Target, which Wesfarmers has repeatedly refused to sell, gives the company yet more reason to think inwards rather than outwards.

Meanwhile, rival Woolworths is having problems of its own.

Its US joint venture partner on the Masters hardware retail chain, Lowe’s, has reportedly sent some high level executives to Australia for meetings that will no doubt deal with the company’s larger than expected losses.

Lowe’s has a put option over its 33 per cent stake in the Masters chain that has been extended to October next year. The next 12 months will be crucial in Lowe’s decision to stay in the business after 2014 and these meetings can be considered the beginning of that period.

Leighton Holdings, Hochtief

Speaking of the movements of the big dogs, Leighton Holdings’s German parent company Hochtief has reportedly indicated it wants to maintain a floating minority shareholding in the Australian icon.

“We don’t want to damage our position in the Australian market,” said Hochtief chief executive Marcelino Fernandez Verdes according to The Australian Financial Review.

The German company, which is owned by Spain’s ACS, recently broke a standstill agreement with Leighton and announced its intention to take its stake above 55 per cent.

It’s already moved to 56.4 per cent from 53.5 per cent, limited to three per cent increments every six months according to rules from the Foreign Investment Review Board (FIRB).

“We will continue investing but . . . we want to keep the Australian flagship,” said Fernandez Verdes.

Pepper Australia, RHG

Mortgage provider Pepper Australia has reportedly launched a late charge to knock off Resimac in the race for RHG, formerly known to you and me as RAMS Home Loans.

The Australian Financial Review has received words from sources indicating that Pepper has teamed up with RHG’s largest shareholder, Cadence Capital, for a cash-and-scrip offer of 35 cents cash and 1 Cadence share for every 10 RHG shares.

Based on yesterday’s market close, that amounts to a value of 49.65 cents per RHG share, which is ahead of Resimac’s improved offer of 48 cents.

If accurate, Pepper is indeed in front, but the share price movement today will be telling. Shareholders don’t just have to make up their mind about taking on scrip instead of cash, they could be presented with a scenario where the cash-and-scrip offer is immediately made less attractive by stock movements.

Finders Resources, Intrepid Mines, Taurus Funds

Another takeover battle is heating up at Finders Resources, which spilled the beans on the struggle yesterday.

The Indonesian focussed Finders said Intrepid Mines has expressed interest in a takeover as Taurus Funds, a major shareholder in both companies, moves to spill the board.

You can see where Finders would take issue here. They’re arguing that Taurus would have a conflict of interest if it were to significantly reshape the board in its own image.

Nothing’s actually firm in this play yet, it’s all jostling behind the scene. Well, until now…

Commonwealth Bank of Australia, Lloyds Banking Group

Commonwealth Bank of Australia is reportedly out of the race for Lloyd’s remaining Australian operations and, apparently, was never really in it.

The Australian understands that while CBA did lodge some interest with Goldman Sachs, which is running the process, it never put forward a bid.

The other three of the big four banks have thrown their hats in, along with Macquarie Group.

Westpac Banking Corporation and ANZ Banking Group are seen as the most logical buyers, but you can’t count out the silver donut either.

The newspaper says the sales process is expected to take about 3 months.

Fairfax Media, Stayz

Speaking of Goldman Sachs, Fairfax Media has reportedly tapped the investment bank to deal with buyer interest in its holiday rentals website Stayz.

The Australian Financial Review understands that US-listed HomeAway is one of the companies that has expressed interest in Stayz.

The business has been valued by JPMorgan at $140 million, though it’s not clear whether Fairfax is determined to sell the business.

The news comes on the back of Fairfax’s sale of its remaining stake in New Zealand online trading juggernaut TradeMe for $616 million.

Wrapping up

Asciano is apparently running a ruler over Kohlberg Kravis Roberts’s BIS Industries, according to The Australian Financial Review.

The private equity firm has wanted to offload the business for the good part of 18 months, but a sales process has never really materialised.

We’ll see what happens here.

Meanwhile, Fortescue Metals Group founder Andrew Forrest has unsurprisingly suggested the iron ore miner will resist the decision by the Economic Regulation Authority of Western Australia that negotiations should begin with Brockman Resources over third party access to its infrastructure.

And finally, the lending syndicate that tipped MediaWorks NZ into receivership two months ago is close to securing control.

Receivers from Kordamentha said yesterday a conditional sale and purchase agreement has been signed for the broadcaster.

The new structure will see US private equity firm Oaktree Capital pick up the largest stake with 26.7 per cent. Meanwhile, Royal Bank of Scotland will hold 21.9 per cent, private equiteer TPG Capital collects 15.7 per cent, Westpac Banking Corp and Rabobank will each get 14.6 per cent, and JP Morgan will secure 6.5 per cent.

Settlement is expected by the end of September.

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