BREAKFAST DEALS: Iron ore intruders
Brockman Resources, FerrAus, Wah Nam International
There's nothing like a good-old fashioned foreign raid on Australian iron ore to get tongues wagging in the market and Hong Kong-listed Wah Nam International Holdings' simultaneous bids for iron ore hopefuls Brockman Resources and FerrAus has ignited talks that the Chinese suitor may be preparing itself as a new force in the Pilbara. Wah Nam may not be a household name in Australia but as it turns out this investment holding company, which makes most of its money from limousine rental and airport shuttle rental services and a copper mine in China has been steadily building its stake in both miners. It currently holds about 23 per cent of Brockman and 19.9 per cent of FerrAus. While the offers sent the shares of both miners through the roof there are considerable doubts about either one making the grade, especially as Wah Nam's scrip is not exactly the most attractive prospect for Brockman and FerrAus shareholders. Chinese suitors so far have been interested in off take deals with Australian producers but this time there is a different angle. Wah Nam's surprise raid is evidently aimed at consolidating the two iron ore juniors, which are already members of the North West Iron Ore Alliance, along with Atlas Iron and there are suggestions that Wah Nam's consolidation plans could be aimed at building up enough critical mass to justify the creation of an independent rail link in Western Australia. Brockman and FerrAus currently have to negotiate access to the infrastructure used by BHP Billiton, Rio Tinto and Fortescue so the lure of a new rail line is attractive from a logistics point of view. However, there is a big difference between ambition and fact, Wah Nam might have some big plans but little cash and building rail networks isn't exactly cheap. While Wah Nam will win kudos for its bold play most in the market are already writing off its chances of its scrip being appealing enough to win much support. There is also a line of thought that the entire exercise may be designed to flush out other prospective suitors for either Brockman or FerrAus, given Wah Nam's existing stakes in the miners it's not a bad plan if the investment company was in it to make some profits. Brockman and FerrAus have both told their shareholders to take no action for the moment. UBS is acting as Brockman's adviser, while Freehills is providing legal advice. Gryphon Partners is advising FerrAus in respect to the offer, while Wah Nam has recruited Capital Investment Partner as its Australian corporate advisor and Clayton Utz as its legal advisor.
Santos, Shell
Woodside Petroleum may have been hogging the headlines this week with speculation on how long before the Perth-based energy major receives a takeover offer from a foreign suitor but attention is finally turning to what's next for Royal Dutch Shell. Shell got the ball rolling this week after cutting a 10 per cent stake in Woodside and with Shell chief executive Peter Voser saying that he was focused on building growth through direct interests and joint ventures rather than indirect stakes there is some talk that the company may look at other Australian assets. According to The Australian, analysts at CLSA are tipping that Shell may switch its focus to Santos as it tries increase its exposure to the LNG projects in the Gladstone. Santos and Shell have had discussions in the past and CLSA analysts have been quick to point out that Santos is easily the "cheapest play” at the moment. Meanwhile, Morgan Stanley has joined the growing chorus touting BHP Billiton as the most likely suitor for Woodside, telling clients that a bid for Woodside would be the most plausible "plan B” for the miner after its bid for Potash Corporation of Canada is dead and buried.
ASX, SGX
The detractors of the proposed merger between ASX and the Singapore Exchange (SGX) continue to come out of the woodwork, with institutions and retail investors voicing their concerns about the deal. According to The Sydney Morning Herald, institutions have raised concerns that the $8.4 billion merger may compromise the key compliance role currently carried out by the ASX. If the tie-up is successful the responsibility for compliance will rest with an Australian unit of the merged entity but the Financial Services Council has reportedly said that foreign control of the ASX may not ensure a fair set of listing rules. The council's chief executive, former NSW opposition leader John Brogden, who says that listing rules are better off staying under domestic control, has reportedly taken his concerns to the Financial Services Minister, Bill Shorten. Meanwhile, the mood of retail investors seems to be souring as well, with a survey carried out by stock forum ShareScene.com highlighting significant opposition to the merger. According to the survey, 77 per cent of ShareScene members said that the sale of ASX was bad news for Australia and Australian investors. For now, the listing rules are set to stay put even if the merger is successful and while a portion of investors may rail against the merger the final decision will rest with Wayne Swan following consideration by the Foreign Investment Review Board and don't forget there is that little issue of securing parliamentary agreement to drop the 15 per cent foreign ownership limit for the ASX.
Ross Human Directions, Chandler Macleod, Peoplebank
Hungry Jacks founder Ross Cowin and the second largest shareholder in recruitment firm Ross Human Directions (RHD) has made good on his promise to trump the 70 cents a share offer lobbed by RHD's Malaysian suitor Peoplebank. Cowin looks to have found a willing ally in listed recruiter Chandler Macleod which has dangled a possible sweeter offer to RHD's board and shareholders, who were set to decide on Peoplebank's offer yesterday. The meeting was adjourned after Chandler Macleod Group said in a letter to RHD's board that it was mulling a 73 cents a share offer for RHD. Chandler said it was confident it could make an offer that was superior to Peoplebank's 70c a share bid and its offer could be all cash or a combination of cash and its scrip. A formal proposal is expected in seven days. While a counter offer to People Bank's offer was not unexpected there was some surprise that the tentative bid had come from Chandler Macleod and not Cowin's company Corom. Either way Cowin will put his full weight behind the Chandler offer once it surfaces and Peoplebank is going to have to stay put a little bit longer.
Wrapping up
With the Port of Brisbane sale done and dusted the Queensland government can now put greater focus on more pressing matters, namely the mega float of QR National. On that front, the state's treasurer Andrew Fraser has told that selling the float to retail investors has been much harder than anticipated. The comments are timely in The Australian Financial Review given that the general retail shareholder offer for the float are set to close today. Luckily for Fraser, the institutional investors have been a little kinder. He is also pretty realistic about what the float means for overall fiscal health of Queensland, telling the paper that even with the $16 billion privatisation plan the state is unlikely to reclaim its AAA credit rating anytime soon. Meanwhile, PM Julia Gillard has delivered some good news for the Australian uranium industry after clearing a way for uranium exports to Russia. Gillard sealed the agreement with Russian president Dmitry Medvedev in Seoul, putting an end to three years of indecision. While the move opens up a new market for Australian uranium producers its immediate effect on the global market will be minimal at best. Selling Australian uranium is fraught with contention and the move is also likely to antagonise the Greens. The other interesting thing here is that the sale has been cleared on the grounds of helping Russia cut its greenhouse emissions. One would think that a similar argument could work when it comes to sending Australian uranium to India. The Commonwealth Property Office Fund's (CPA) decision to spread its wings in the Melbourne market with the $1.8 billion fund buying three office buildings in the Melbourne CBD for $581.4 million from private construction group Grocon, controlled by the Grollo family. The acquisitions will be funded by a fully underwritten $158.6 million institutional placement and a $115.4 million from a one-for-15 non-renounceable entitlement offer. Strategically the deal is a win-win for both parties as it helps CPA tap into Grocon's development pipeline and give Grocon more capital to make the most of upcoming development work. However, The Australian Financial Review reports that some CPA investors are worried that the fund may be paying a bit too much for the mature assets and there is some discontent about the fact that CPA has issued its units to Grocon, which is taking $60 million of the price in the units at 88 cents and $43 million at 86 cents, at a discount.
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