BREAKFAST DEALS: GrainCorp splash

GrainCorp defies talk of a potential takeover with its latest acquisitions, while Sunrice fields a request to list on the ASX.

Where does GrainCorp sit in the consolidating agribusiness sector following the deals with Garden Smith and Goodman Fielder? Agricultural monopoly Sunrice is being pushed to list on the ASX to grab greater valuations. Today, look forward to some word from Alesco, following the ultimatum from DuluxGroup. Finally, Seven Group is holding out for the consumer watchdog on Consolidated Media Holdings, while FKP Property has discounted big time on its capital raising.

GrainCorp, Garden Smith, Goodman Fielder, Integro

GrainCorp might have jumped off the potential takeover target list after forking out $472 million for the family-owned seed crushed Garden Smith and Goodman Fielder’s Integro oil and fats business.

Goodman Fielder has been trying to offload Integro for months, following a strategic review. Some of the heat came out of the sale process when the Australian Competition and Consumer Commission knocked Cargill out of the process for a second time.

Garden Smith will be granted $110-$121 million scrip for the deal, while Goodman will also raise around $159 million via a 1-for-11 fully underwritten accelerated, pro-rata renounceable rights issue.

The issue is priced at $8.80 a share, which is a relatively modest 10.1 per cent discount to the theoretical ex-rights price. Institutions will be tapped for about $103 million, while retail shareholders are set for $56 million.

The rest will come from its existing debt facilities. Credit Suisse has been acting as adviser.

GrainCorp managing director Alison Watkins had some good news to get investors jumping on the acquisition and capital raising bandwagon. She told shareholders that they can be confident that the grains company’s full year underlying profit will come in at the "upper end” of guidance.

The final average cost of the two businesses was seven times EBITDA, with Gardner Smith on the expensive side and Integro looking like a bit of a bargain. After some questions from analysts and investors, Watkins seems to have broad support for the move.

The complicating factor here is the Garden Smith scrip issue. In six months time, those shares will shed their trading restrictions and there’s the potential for a share price drop when stock becomes available – social media company Facebook is grappling with this very problem right now.

Additionally, some onlookers have seen GrainCorp as a potential takeover target, particularly with the global consolidation led by Glencore International and Agrium.

Those shares sitting on the sideline could act as an inhibitor to any potential suitor. Hence, shareholders that have taken a position in GrainCorp with an eye towards M&A activity will have to adjust their valuations.

What can’t be forgotten from this whole affair is the confusion about what exactly transpired by Goodman Fielder and 10.1 per cent shareholder Wilmar International of Singapore.

Reports have indicated that Wilmar had put a proposal to Goodman Fielder, a claim that has been denied by the Australians.

Sunrice, Bell Potter

Australian agricultural monopoly Sunrice has received a call to list on the Australian Securities Exchange instead of the National Stock Exchange to enhance the former takeover target’s value.

The calls have come from Bell Potter, at the request of stockbroker Colin Bell, who is also chairman of major Sunrice shareholder Australian Food and Agriculture Company.

The Bell report concludes that Sunrice’s value could increase by up to 35 per cent if it listed on the major exchange.

The news rekindles the memories of a failed bid by Spain’s Ebro to take the company over 14 months ago.

Sunrice has a two-tiered shareholder structure with A-class shareholders, mainly growers, and b-class shareholders, many of which are former employees.

Ebro needed 75 per cent approval from both. It got 76 per cent from the latter, but only 67 per cent of the former.

The Bell report specifically attacked this two-tiered structure as a "relic” of its "co-operative past”. Many would say that Sunrice remains a co-op.

DuluxGroup, Alesco Corporation

The board of Alesco Corporation has until today to get behind the DuluxGroup offer regardless of what the Takeovers Panel says, or else.

That’s the tone of the statement issued to the market by Dulux yesterday, albeit with a rather disingenuous title, ‘DuluxGroup acts to provide certainty for Alesco shareholders’. Alesco’s isn’t the only register that would benefit from a final outcome.

Dulux says the discussions with Alesco over the infamous franking credits component of the $210 million bid have continued over the past few days and that one issue remains outstanding.

The paints company has already declared the bid "best and final,” which is likely to fall foul of the Takeover Panel given the pair have tried to improve the offer with those franking credits with a dividend of up to 75 cents.

Dulux says it’s willing to take the proposal to the Panel on the proviso that Alesco recommends its offer regardless of the ruling.

Further, Dulux also says in the statement that the Australian Securities and Investments Commission has made its opposition to the proposal clear, while the Takeovers Panel has "not provided any confidence that the 75 cents proposal would be permitted”.

Dulux says it’s willing to engage with the Panel to try to resolve the issue, which could include some compensation being paid to investors that traded on the "best and final” statement.

In return, Dulux wants Alesco’s allegiance in writing by 1700 AEST today (Wednesday). If the garage door maker doesn’t step up, Dulux says it will consider talks on the 75 cents dividend over.

If that were to happen, Dulux has 43 per cent acceptances, but only roughly 23 per cent are legally binding. Of that figure, 19.9 per cent is Dulux’s own stake in the company.

So Dulux would be left with 23 per cent of Alesco and the two would be kind of stuck with each other, unless the suitor is willing to take the downside that offloading the stock would inevitably bring.

Seven Group Holdings, Consolidated Media Holdings, News Limited

Breakfast Deals has portrayed media billionaire Kerry Stokes as the potential wildcard in the potential sale of Consolidated Media Holdings to News Limited.

That’s accurate, but you could also argue that the wildcard is Australian Competition and Consumer Commission chairman Rod Sims.

The ACCC is investigating the possibility of Seven Group Holdings increasing its stake in CMH, just as News proposes $2 billion for the company outright.

Yesterday, Seven made it perfectly clear that it won’t make a decision on the News proposal, which is not a firm bid yet, until it gets word from the competition regulator.

Stokes controls 24 per cent of CMH, but if Sims decides against allowing CMH to build its stake further in the media investor, the wildcard is neutralised.

The target is CMH’s 25 per cent stake in pay-TV company Foxtel.

Exco Resources, Washington H Soul Pattinson, Ivanhoe Australia

Exco Resources has told shareholders not to accept the $70 million takeover offer from Washington H Soul Pattinson, despite major shareholder selling into it.

Soul Patts now has 19.9 per cent of Exco after Ivanhoe Australia, majority-owned by Rio Tinto, offloaded $4.6 million in shares to the suitor. It intends to sell the remaining 16 per cent it owns to Soul Patts unless a superior offer emerges.

The market is possibly pricing such an offer in, barely. Shares in the target are trading at 20 cents a just, just above the 19 cents offer price.

The problem the directors have, with the exception of (Ivanhoe Australia chief operating officer) Mike Spreadborough, is that the offer is an 18 per cent premium to Exco’s average weighted price in February, the month before the bid went live.

That’s a bit skinny. The question is whether Exco can hold out against a suitor that effectively has 36 per cent of the register saying yes.

Wrapping up

As flagged yesterday, FKP Property Group will raise around $208 million via a 6-for-7 on-renounceable, pro-rata entitlement offer, underwritten by Goldman Sachs.

It’s a big fat discount. At 20 cents a share, the company’s raising is a 47 per cent discount on the last trading price of 38 cents and a 33 per cent discount on the theoretical ex-rights price of 30 cents. That latter price is still significant.

FKP said in a statement that Mulpha, its largest shareholder, has already committed to taking up its entitlements.

Meanwhile, energy giant BP has launched its first Australian bond in order to take advantage of the strong currency differentials.

According to The Australian, BP is issuing five-year debt of at least $300 million at about 115 basis points above the underlying swap rate.

The same newspaper also reports comments from Deutsche Bank analyst Paul Young, who believes that Atlas Iron might need to raise $180 million in order to double production in the Pilbara if iron ore prices stay where they are.

And finally, Billabong International hasn’t been able to knock over everyone’s expectation that a private equity firm will have a role to play in the company’s future; doing so would have been near impossible.

Media reports indicate that private equity would be able to secure a compelling return on equity with a bid of $2 a share, well above the $1.45 currently proposed by TPG Capital.

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