BREAKFAST DEALS: GrainCorp sweetener

Archer Daniels Midland has moved to placate farmers by approving GrainCorp's $250 million capex, while Virtus had a float to remember.

GrainCorp’s suitor is doing all it reasonably can to reassure growers they won’t be worse off under US ownership. But that’s not quite the issue. Meanwhile, Virtus Health has staged a brilliantly successful IPO; investment bankers now have a test case to show clients also wanting to float. Meanwhile, ASX’s capital raising has conspiracy theorists chatting up a storm and Discovery Metals says it’s talking… but won’t tell us anything else.

GrainCorp, Archer Daniels Midland

US grain giant Archer Daniels Midland has thrown in some extra cash for local farmers who don’t like the idea of GrainCorp becoming an American-owned company.

However, it’s unlikely to settle the noise in the lead up the competition regulator’s ruling on the $3.2 billion deal.

East coast farmers are concerned that they could be left without access to GrainCorp’s storage, handling and export facilities, or that they might have fight harder to get it.

ADM has approved GrainCorp’s $250 million planned capex spend on handling and transport infrastructure – a compelling gesture when it hasn’t yet received regulatory approval to acquire the company – and increased that budget by another $50 million.

The US behemoth has sent its grains boss, Ian Pinner, to be calming influence on proceedings. He’s currently talking to farmers up and down the east coast in an attempt to persuade them that they’ll be no worse off under ADM than GrainCorp.

That argument mightn’t be enough to satisfy some of the farmers. Here’s why.

It’s unlikely that some farmers are comfortable with a monopoly infrastructure provider, whether it’s an Australian company or a US company.

This is the best opportunity they have to raise their concerns. Once ADM’s acquisition of GrainCorp goes through – assuming that the Australian Competition and Consumer Commission and the Foreign Investment Review Board ultimately approve the deal – they’ll have next to no leverage.

GrainCorp boss Alison Watkins has already pointed out that the grain handler’s seven export terminals (of a total of eight on the east coast) are a long way from being at full capacity. GrainCorp needs the third parties to get a good return on those assets.

Granted, if the infrastructure isn’t being utilised it would make sense to shut some down. Pinner has to sooth such concerns. Beyond that, he can’t do much else.

Virtus Health, Ramsay

Fertility services company Virtus Health has, in one fell swoop, injected some much need optimism into the Australian IPO and listed healthcare industries.

Virtus finished its debut session on the ASX at $6.20, up almost 9 per cent, with a market cap of just under $500 million.

The move was a long-awaited demonstration that you can successfully launch a company of scale onto the ASX in the current environment.

Investment bankers will be hoping that it becomes a piece of evidence they can throw at clients that have been umming and ahhing about their own ASX float plans. – “What are you waiting for? The market is ready for you!”

Virtus also dragged the healthcare sector up noticeably. In a market that finished the session up 0.4 per cent, Cochlear rose 2.8 per cent, Ansell jumped 3.8 per cent, Sonic firmed 3.1 per cent and Ramsay Health Care improved 3.8 per cent.

Speaking of Ramsay, the private hospital operator has taken a 90 per cent in France’s Clinique de l'Union, having entered the market three years ago.


ASX Ltd chief executive Elmer Funke Kupper had more than a few investors scratching their heads yesterday after the market operator’s $553 million capital raising.

The 2-for-19 pro-rata accelerated renounceable entitlement offer at $30 a share wasn’t just unexpected, but it was an unexpectedly steep 16.3 per cent discount on the last trading price.

Why sacrifice that sort of territory when you’ve only got a gearing ratio of 8 per cent?

As Business Spectator’s Stephen Bartholomeusz argued yesterday, the main reason is the pending European regulations that will require clearing houses to hold much more capital.

ASX is certainly preparing early. The operator doesn’t have to seek permission from Europe until September and then a sign-off mightn’t be received for another six months.

As Bartholomeusz wrote yesterday: “The more cynical might see the size of the capital raising and its legacy of a balance sheet with net cash as a preparatory move for a major acquisition.”

To be honest, the strategic importance of a big international deal is a constant factor. It’s hardly likely that a major exchange would look at ASX and say to itself, ‘It’s that capital raising that really did it for us’.

While a cynic could rightly point out that this is simply the ASX making sure it has a staggeringly good balance sheet for the advent of a deal, it’s difficult to see beyond the European regulations.

ASX had to do this at some stage. If it makes your house look in order, why not do it now?

Discovery Metals

African-focussed copper miner Discovery Metals didn’t have much to tell the market yesterday, but it was enough to push the stock up 12.5 per cent.

The miner, which has been in a tussle with major shareholder and former quasi-suitor Cathay Fortune Corporation, said it’s in talks with some interested parties about a possible deal.

“The Board will update the market of material developments in due course,” said Discovery. “There can be no assurance that a transaction will occur.”

The company had nothing more to say. Crossed fingers.

Wrapping up

Seven West Media appears to have snuffed out attempts by rival Ten Network to meddle with its long-standing broadcasting relationship with Tennis Australia.

The Australian Financial Review reports that Seven Network has managed to dissuade Tennis Australia from putting the rights to the Australian Open to the market, despite the calls from new Ten boss Hamish McLennan.

They’ve done it by putting up more cash. The newspaper has received word from sources that the five-year extension is worth $31 million a year, against the current going rate of $20 million.

Speaking of broadcasting rights, Nine Entertainment’s $450 million deal with Cricket Australia has been given the thumbs up be credit rating agency Standard & Poor’s.

Elsewhere in media, News Corp shareholders gave the green light to the plan to split the company’s print and entertainment assets.

And finally in resources, Rio Tinto apparently has China’s Shenhua Group and India’s Aditya Birla Group thinking about a bid for its Australian coal assets.

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