BREAKFAST DEALS: GrainCorp grilling

GrainCorp will be put through the wringer at today's AGM, while Qantas waits for some big news.

GrainCorp goes before its shareholders today to explain its reticence towards Archer Daniels Midland, while the consumer watchdog is expected to offer its thoughts on deals for Qantas Airways and Telstra Corp. All in all, it’s a big day for some big players. Meanwhile, an institutional investor has added to Billabong's pain by saying it wants out at $1.10, Commonwealth Bank’s Aussie Home Loans deal appears to have drawn out Macquarie Group for Yellow Brick Road and BHP Billiton is offloading assets and mulling more. Also, James Packer has secured a majority at Crown and Whitehaven Coal hasn’t denied discussions with Shenhua Group.

GrainCorp, Archer Daniels Midland

GrainCorp chief executive Alison Watkins will go before her shareholders today for the grain handler’s annual general meeting with one question looming above all others. Why did you choose against engaging with suitor and major shareholder Archer Daniels Midland on its $2.8 billion takeover proposal?

That was the question posed by Ellerston Capital investment boss Ashok Jacob, with the James Packer confidante now counting his firm as a former shareholder in GrainCorp. As a former shareholder, Ellerston holds no sway over these matters and it should be pointed out that it’s understood that the register is, broadly speaking, behind their position.

Watkins and GrainCorp chairman Don Taylor have both made statements in the last few days defending the company’s decision not to engage with ADM, even after the US giant bumped up its offer to $2.8 billion, or $12.20, from $2.7 billion.

It’s been widely reported that GrainCorp is looking for something north of $13, which would better reflect the company’s strategic strength and be more comparable with other recent transactions in the industry.

ADM now has a 19.9 per cent stake in GrainCorp and we all know what they think of their target’s response. Hedge funds are thought to have picked up around 15 per cent of the target. So far, they haven’t spoken out.

Qantas Airways, Emirates, Telstra Corporation

Just briefly, today is also a big one for Qantas Airways, because the consumer watchdog is due to hand down its preliminary findings on the proposed alliance with Middle Eastern giant Emirates.

It’s difficult to peer into the thinking of Australian Competition and Consumer Commission, but it’s widely thought that chairman Rod Sims won’t stand in the way of Qantas’ deal.

Meanwhile, we’re also expecting to hear the ACCC’s word on Telstra Corporation’s tilt at South Australian ISP Adam Internet.

The price of the transaction hasn’t been announced, but it’s thought to be worth something like $60 million.

Telstra’s rivals are quite displeased at the prospect. Executives from iiNet, Macquarie Telecom and Vodafone Hutchison Australia all wrote to the consumer watchdog yesterday urging it to reject the deal.

Billabong International, Paul Naude, Sycamore Partners

Billabong International has suffered a body blow from which it might not recover, at least as a public company.

The Australian Financial Review reports that the surfwear company’s largest institutional shareholder, Perennial Value, would sell out at $1.10. That’s the price Billabong director Paul Naude and US private equity group Sycamore Partners are proposing for Billabong, valuing it at $527 million, which the target is considering.

Billabong has to be able to sell its turnaround strategy under new chief executive Launa Inman to the register as a greater opportunity for shareholders than the $1.10 that Naude is offering. Losing a key institutional shareholder so early – and so matter-of-factly – in the piece is a big setback.

As Business Spectator’s Stephen Bartholomeusz points out, Naude probably would have had a sniff that Billabong was going to deliver more bad news to the market, which came in the form of yesterday’s earning guidance downgrade.

None of this is Inman’s fault of course. In chief executive terms she’s been at the helm for five minutes and her navigation instruments are playing up.

The trouble is that Billabong has to convince shareholders like Perennial that there’s better value to be found by waiting four years. That’s the length of Inman’s turnaround plan, which has actually got some pretty good support from analysts.

The significance of the trading update almost obscured the details of Naude’s offer, which the market has been waiting since mid-November to see.

It’s indicative, non-binding and conditions on, amongst other things, due diligence. These kind of proposals are really becoming par for the course.

It also requires minimum acceptance of 90 per cent, no further deterioration in Billabong’s position and for no acquisitions or asset sales to take place.

Then of course there are the usual regulatory approvals, including the Australian Foreign Investment Review Board. This isn’t expected to be a problem.

Billabong has brought in Goldman Sachs at its adviser, with Allens covering legal matters.

Best of luck to all of them.

Macquarie Group, Yellow Brick Road

Has Commonwealth Bank of Australia’s move on Aussie Home Loans drawn out Macquarie Group?

That’s the question being asked this morning after the silver donut took an 8.3 per cent stake in Mark Bouris’ Yellow Brick Road mortgage lender yesterday, a day after CBA’s move.

It’s a much smaller deal. The stake cost Macquarie $6 million, while CBA is thought to be paying hundreds of millions.

Yellow Brick Road and Macquarie are already working together on a deal that would see the investment bank push cheap mortgages through the Bouris vehicle to undercut the big four banks in a big bad way.

The stake purchase just brings the pair closer.

BHP Billiton, Cameco

BHP Billiton isn’t mucking around.

Last night, the Canada’s Cameco announced the completion of its $US430 million acquisition of BHP’s Yeelirrie uranium deposit (now let us Aussie’s in on Canada’s uranium assets hey!).

An overnight report from Reuters also claimed that BHP has selected B&A Minerao, founded by former Vale boss Andre Esteves, as preferred bidder for its Mount Nimba iron ore deposit in Guinea. Neither company was commenting on the story.

But attention this morning is on the miner’s intentions for the British oil and gas assets.

According to media reports, BHP investigating whether to sell the assets as part of a building an energy business centred on core assets in the United States and Australia.

This isn’t altogether unexpected. BHP chief executive Marius Kloppers and petroleum boss J Michael Yeager have been making noises to this affect in recent months as the company prepares for capex commitments without the blessing of gangbuster commodity prices.

The UK business contains a 46 per cent stake in the Liverpool Bay site, some offshore fields in the North Sea and a processing terminal at Point of Ayr.

Earlier this month, BHP offloaded its minority interest in the planned Browse gas project to PetroChina for $US1.63 billion, which came on the back of the $US500 million diamond business sale to Harry Winston Diamond Corp.

While we’re talking mining, BC Iron looks like it will finally wave goodbye to Hong Kong investor Regent Pacific, with news that the former suitor is planning to sell down its 20 per cent stake.

It’s not a done deal with the Regent register getting a vote on whether to empower the board with a "mandate” to offload the stake. But initial expectations are that the stake will be sold 18 months after Regent’s $345 million tilt at BC fell over.

James Packer, Crown

Billionaire James Packer has taken some of that $1 billion he picked up from selling Consolidated Media Holdings to News Limited, the owner of this website, and secured a majority of Crown Limited with it.

Packer forked out more than $140 million for 13.8 million shares in Crown at $10.33 yesterday, with the help of his preferred investment bank UBS.

While the Son of Kerry has effectively controlled Crown for some time, this makes things official 18 years after his father first bought in.

Packer has been using the creeping provisions within the corporations act on Crown, which allows a shareholder with more than 19.9 per cent to purchase of 3 per cent every six months without offering a takeover premium.

The gaming billionaire also owns a stake in rival Sydney casino company (by the way, Packer doesn’t have a casino in Sydney yet) Echo Entertainment and many have wondered whether he might employ the same tactic.

Since securing the support of the NSW government for his 6-star Barangaroo proposal, this speculation has ebbed.

Wrapping up

Whitehaven Coal shares surged 8 per cent yesterday on news that it has held discussions with China’s Shenhua Group.

The coal miner didn’t confirm it has suggested to Shenhua to make a play for the whole company after the Chinese proposed to spin a coal asset into Whitehaven in exchange for equity.

But Whitehaven did say that it "routinely” conducts discussions with other coal companies, including Shenhua, for which existing synergies are "obvious”.

While we’re on resources, Nexus Energy’s stake in the Crux gas and liquids field in Western Australia will drop to 15 per cent from 17 per cent, after the company exercised a right to sell a $75 million stake to operator Royal Dutch Shell.

And finally, Debtwire is reporting that two Nine Entertainment lenders in the hedge fund consortium have sold out as the company heads towards a $3.4 billion restructure.

As the leading hedge fund lenders Apollo Global Management and Oaktree Capital fight with some of the minority lenders it appears two players have sold out because they’re unwilling to wait until Nine is launched back into the ASX.

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