BREAKFAST DEALS: GrainCorp guesses

GrainCorp may reveal why it wouldn't engage with suitor Archer Daniels Midland, while Qantas faces heavyweight clashes.

GrainCorp is expected to release a good set of numbers today, but it’s the case against engaging with Archer Daniels Midland at $2.7 billion that everyone is interested in. In aviation, Emirates has had a big crack at the Qantas critics, while words are flying about a second Sydney airport. Meanwhile, Gina Rinehart is reportedly starting financing discussions within days, Fortescue Metals Group isn’t giving much away about potential infrastructure stake sales and, at long last, APA Group is in compulsory acquisition territory with Hastings Diversified Utilities Fund.

GrainCorp, Archer Daniels Midland

All eyes will be on GrainCorp today to see if chairman Don Taylor will give us some details on why US agribusiness giant Archer Daniels Midland was knocked back at $11.75 a share.

GrainCorp delivers its full-year results in what are somewhat unusual circumstances. ADM ceased its efforts to "engage” the GrainCorp board with its $2.7 billion offer, but the target hasn’t given much background on why that pricetag "significantly undervalues” the company.

It shouldn’t be a difficult case to present. Many analysts believe that the industry going rate means GrainCorp should be targeting an offer of about $3 billion – perhaps more if you consider its strategic significance.

Credit Suisse and Greenhill are currently advising GrainCorp, both will be acutely aware of how the global agricultural industry push for consolidation puts their client in the box seat. Selling out to low-ball offers is not an option.

However, shareholders are rightfully curious as to why a solid premium can be knocked back and with the stock still trading 40 per cent higher than before ADM’s offer was revealed, management should answer their questions.

Qantas Airways, Emirates

Aviation industry leaders are throwing their weight around over the two big proposals that will shape Australia’s airline industry for decades to come.

The first is the 10-year alliance proposal between Qantas and Middle Eastern carrier Emirates. The two airlines flew a group of journalists over to Dubai to meet Emirates president Tim Clark, who was to the point in his defence of the deal and the broader strategy of Qantas management.

Clark also addressed persistent rumours that former Qantas chief executive Geoff Dixon and investment banker Mark Carnegie have been eye up Qantas for a potential buyout, saying someone will have to "eat their words”.

"Within three years, given the Qantas strategy, given its link to Emirates and us to them, things will be completely different for Qantas," Clark said, according to media reports.

The Australian Competition and Consumer Commission is broadly expected to approval the Qantas-Emirates link-up, but isn’t expecting to make a final decision until March next year.

Meanwhile, current Qantas chairman Leigh Clifford and Sydney Airport chairman Max Moore-Wilton reportedly clashed at a business lunch in Sydney yesterday over the debate about a second airport in for the Emerald City.

The capacity issues facing Sydney Airport present not only a problem for Australia’s two major airlines, both of which are engaged in strategy-changing deals with international partners, but the construction of a second airport would also be a boom for construction companies.

Clifford urged the federal government to find a solution to the problem, saying Australia needs to "get on with” the task of easing pressure on our busiest airport.

Moore-Wilton countered that politicians are in fact stifling the efficiency of the airport.

Gina Rinehart, Hancock Prospecting, Fairfax Media

Gina Rinehart is reportedly set to commence direct discussions with lenders about $7 billion in financing to get the Hancock Prospecting Roy Hill iron ore miner up and running.

The Australian Financial Review reports comments from Hancock executive director Tad Watroba addressed scepticism in the market that the project can be realised with iron ore prices at $US120 per tonne.

"It is a war,” Watroba told the Australian Resources Conference, according to the AFR.

"Business is business. For them to protect their position they have scepticism. We had the same thing with Hope Downs. It is normal. I don’t feel bad about it or angry with them but that is the nature of the beast.”

It’s become clear that Roy Hill is extraordinarily important to Rinehart because as yet, neither herself nor her father have been able to put an operational mine to the family name.

As such, the family jostling over the company’s ownership have been particularly concerning with the iron ore price slump putting many projects on hold. Additionally, Rinehart appears to be putting less energy into her recent foray media ownership.

But she hasn’t gone entirely quiet. Media reports also indicate that Rinehart has backed the decision by Fairfax Media to sell its US agricultural publishing arm for $US79.9 million. She’s also pushing for more asset sales.

Fairfax sold the business to a US company called Penton, which is owned the MidOcean Partners and Wasserstein & Co private equity firms.

That’s an interesting point in itself that no one’s paying attention to – private equity players buying up media assets.

Fortescue Metals Group

Rinehart was one of the parties reportedly talking to Macquarie Capital about the infrastructure assets of Fortescue Metals Group. Andrew ‘Twiggy’ Forrest’s company also had a bit of business to do yesterday.

Fortescue played a pretty straight bat to news that Macquarie is supposed to be looking into partial sale options for the miner’s rail and port infrastructure assets.

Speaking at the company’s annual general meeting in Perth, chief executive Nev Power used the question as an opportunity to talk up the value of its infrastructure, houses in The Pilbara Infrastructure, saying they’ve received strong interest from home and abroad.

"We’ll continue to evaluate our options but we’re under no time pressure there and we’ll look at that only on the basis of full and fair market value," said Power.

"We have world class assets. The level of interest doesn't surprise us."

There’s not much, if anything, to conclude from those statements. If Fortescue is seriously considering its options with the rail and port assets in order to make a dent in its $US10 billion debt, Power isn’t giving that away.

Twiggy, however, was more willing to go out of a limb, claiming that this coming decade will be "the best that we’ve seen” for China’s growth.

Most commentaries have conceded that the iron ore price isn’t returning to levels seen earlier this year. But the Chinese leadership transition, now formally sealed, will lift the uncertainty around some key infrastructure decisions, potentially lifting demand for steel and its ingredient, iron ore.

Iron ore prices are now back around $US120 a tonne, where Fortescue can make a dollar or two while servicing its debt and expansion costs.

Is that enough to render rail and port stake sales unnecessary? We’ll wait and see.

Wrapping up

Macquarie Group has given the M&A market hope that next year, finally, will be measurably better than the one before it.

According to a research note from analysts John O’Connell and Matthew Brooks, global M&A activity will begin to rebound in 2013 and will rise 80 per cent to $US4.6 trillion by 2015.

Meanwhile, staggering though it may seem, gas pipeline owner APA Group has only just cross the 90 per cent ownership level for Hastings Diversified Utilities Fund (HDF), which is the finish line allowing it to compulsorily acquire the rest of the stock.

APA Group ultimately beat out a rival proposal from consortium Pipeline Partners Australia with its cash firepower, but it’s been a long time coming for the HDF register to fully get on board.

In resources, media reports indicate that Nathan Tinkler and coal junior Blackwood Corporation are still in talks over the debt $28.4 million that the coal baron’s Mulsanne Resources owes.

But the NSW Supreme Court says if the matter isn’t sorted soon, Mulsanne faces liquidation.

Meanwhile, The Australian Financial Review reports that GE Capital Real Estate is thinking about increasing its $500 million property sale drive after receiving strong interest from potential buyers.

And finally, construction giant Leighton Holdings has written of its $63 million exposure to Brisbane Airport Link operator Brisconnections.

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