BREAKFAST DEALS: Hostile intent

Lunch isn't just for wimps. Be sure to check out LUNCH DEALS for more wheels and deals later today.

Xstrata's bid for Anglo American gets a little less friendly and China strikes a major oil deal, plus there's merger rumours galore and a $324 million equity raising for FKP.

Xstrata and Anglo American

A "strictly private and confidential" letter from Mick Davis at Xstrata to "Mark & Cynthia" at Anglo American has been posted to the London Stock Exchange, in the first step of Xstrata's transformation from friendly merger friend to hostile bidding bidder. It's a process known as a "bear hug", a semi-hostile takeover, and while the bidding price has not been raised, Xstrata has issued a few friendly reminders that it will go directly to Anglo shareholders if the board doesn't play ball. On Monday, Anglo called the offer "totally unacceptable," and that stance is not expected to change just because the hug has gotten a little tighter and Xstrata's hands have started to move down the waist. Interestingly, Anglo boss Cynthia Carroll – no coquette – is in Brazil right now, ostensibly on a visit to the company's projects in the home country of Vale – a possible rival suitor. It is not known if any trips to Melbourne or Beijing have been planned. But more on Beijing below.

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China Inc: Oil

Chinese oil giant Sinopec has agreed to acquire Canada's Addax Petroleum for $US7.2 billion – China Inc's biggest cross-border deal of all time after Chinalco's failed $US14.3 billion joint venture with Rio Tinto. The deal comes after PetroChina announced last month a 45.5 per cent purchase of Singapore Petroleum Company from Keppel Corporation at a 24 per cent premium to the then trading price. The Addax deal was made at a 23 per cent premium (against an industry average of 17 per cent) according to Dealogic. But it's not just the premiums China is paying that are of interest. No doubt the country's M&A loan system is helping with that, it's also the fact that Addax is hardly what you'd call an easy company to own. Operating in Nigeria and Kurdistan, the deal will potentially (probably) annoy the Iraqi government in Baghdad, whom China has been negotiating future oil supply agreements with. But perhaps there was a greater geopolitical game at play, if rumours are correct that India's Reliance Industries and ONGC were bidding for Addax as well. The battle for the world's oil supplies in the 21st century has been compared to Europe's carve-up of Africa in the 19th. After the Sinopec and PetroChina deals, plus CNOOC's purchase of Norway's Awilco Offshore last year for $US2.5 billion, what's clear to Australia is that China is using corporate acquisitions, not off-take agreements, as its tool of choice in oil supply. RBC Capital Markets advised Addax, while Credit Suisse advised Sinopec.

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China Inc: Mining

In the wake of the Chinalco-Rio fiasco, authorities in China's northeast have announced the discovery of Asia's biggest iron ore deposit. It is said that there are many different Chinese words for irony, but before they find a word for 'schadenfreude', the resource needs to be measured up, analysts say. In any case, the discovery has not impacted iron ore price negotiations between China and major suppliers like Rio Tinto and BHP Billition, nor has it put a halt to rumours that Chinalco is still eyeing either Anglo American or Xstrata (see above) and indeed, Britain's Guardian newspaper has suggested that a Chinese takeover of Anglo may be more palatable to South Africa than one by Xstrata. We don't know if The Guardian's socialist roots are feeding such suggestions, but it's a different view nonetheless. Meanwhile one RBC mining analyst in London has suggested that Chinalco could have interests in diversifying its commodity spread, notwithstanding its traditional interest in iron ore and aluminium. It stands to reason then that some were unsurprised when the ASX company information website briefly started displaying Chinese characters yesterday afternoon. We now believe that it was just a glitch; a glitch that's been fixed.

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Lion Selection and Catalpa Resources

Listed resources investment company Lion Selection will spin-off its shareholdings in other mining companies and merge its gold operations with miner Catalpa Resources, of which it owns 47 per cent. Subject to due diligence and Catalpa undertaking an 11-for-one share consolidation, Lion shareholders will receive one share in Catalpa for every Lion share they own and receive a further 10 cent per share cash distribution. In conjunction to EL&C Baillieu Stockbroking, which also advised Lion (Austock advised Catalpa), shareholders will also have the opportunity to sell their holding, or purchase more shares on a best endeavours basis, Lion said. The merged entity will become a 130,000 ounce per annum gold producer once Catalpa's Edna May gold project in Western Australia comes into production. Lion also brings a 30 per cent interest in Newcrest Mining's Cracow mine in Queensland, effectively valued at $35 million by the merger. As for the split, Lion shareholders will also receive one share in a National Stock Exchange (NSX)-listed vehicle, Lion Selection Group (LSG), which will holds interests in a number of companies, including 6.8 per cent of Indophil Resources, a company that once tried to acquire Lion itself. On completion of the merger, Lion CFO Peter Maloney will become chairman of the combined entity and Catalpa's Bruce MacFadzean will remain managing director. LSG will be run by other current Lion executives, including Lion MD Robin Widdup.

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Woolworths

A Morgan Stanley broker note has posited that Woolworths would use its financial position to make a major overseas acquisition, rather than buy-back shares. The supermarket chain has been making small purchases but is yet to sign-off on any big ticket deals – prompting some to say it is taking market share by stealth. Recently it bought organic grocer Macro Wholefoods and a 25 per cent stake in Perth's Gage Roads Brewing Co. Woolworths also has interests in pubs, bowsers and 10 per cent of New Zealand retailer The Warehouse. Earlier this month we reported speculation that Woolworths may be eyeing Florida supermarket chain Winn Dixie, which has 520 stores. It is thought fellow Dixieland chains Bruno's and Bi-Lo could be of interest. Woolworths recently appointed Citigroup to look at North American acquisition targets on its behalf.

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Air New Zealand and Virgin Blue Holdings

A Macquarie Equities note has opined that Air New Zealand should consider a merger or "some level of corporate investment" in Virgin Blue to improve prospects and profitability. Air New Zealand hoped to merge with Qantas Airways three years ago, but Macquarie doesn't see the same level of competition concerns, considering Virgin's much smaller size in the market. Neither airline has responded to Macquarie's suggestion, but Sir Richard Branson, no lover of national flag carriers like Qantas (or for that matter a government-controlled Air NZ) possibly likes the idea. Branson, who also owns Virgin Atlantic, has been calling for Downing Street to let British Airways collapse. BA once courted Qantas over a merger. Meanwhile on the ground, fellow silver doughnut Macquarie Airports has put another $711 million into its major investment Sydney Airport, increasing its stake to 74 from 72 per cent. The increase comes after some shareholders – including other MacFunds – declined to participate in a capital raising. Hochtief Airports and the Australian Infrastructure Fund (which last week announced a $211 million offer did however participate to maintain their stakes. Elsewhere, The Australian reports that Global Aviation Holdings Fund, backed by the Liberman family, may soon be wound up.

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Wrapping up

FKP Property Group will raise $324 million today, $251 million of which will be underwritten by Goldman Sachs JBWere, according to the Financial Review. If the underwriter part of that is correct then it means the relatively high 4 per cent fee that Macquarie and UBS charged for the company's last $100 million raising in October has failed to endear. No fee figure for GSJBW has yet been suggested, but major shareholder Mulpha has been put forward as a $73 million sub-underwriter. It is not known if Stockland, which is another big investor in FKP, will participate in what is tipped to be a 2.3-for-one rights issue at 40 cents a share, a massive discount to the last trading price of 76 cents and just 8 per cent of the price FKP snubbed when Lend Lease came knocking last year. We can think of plenty of other words made up of the letters F and K. Over to other examples of alliteration, Reuters has cited sources as saying that ex-Goldman Sachs partner Mark "Goldfinger" McGoldrick has raised $US2.5 billion to invest in Asia. Hedge and private equity fund news has otherwise been dominated by the revelation that Kohlberg Kravis Roberts will merge with its Amsterdam-listed fund, KKR Private Equity Investors, before eventually listing on the NYSE. Rival fund Blackstone Group listed in New York in July 2007. At the other end of the bourse scale, China is apparently planning to launch an AIM-style small cap exchange called the Growth Enterprise Board. And finally, Gold One International has launched a $37.5 million capital raising managed by Hartleys, West Australian Metals is in talks with France's Areva over uranium in Namibia, FerrAus is joining peers like Warwick Resources and Hannans Reward by mulling M&A activity in the Pilbara and the AFR reports speculation that AMP is sniffing around Suncorp-Metway's rebranded insurance division Suncorp Life. Aussie Home Loans' John Symond is also looking to get into the insurance game.