BREAKFAST DEALS: Is AMP raising?

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It might be a long-shot, but talk is that AMP is planning a $4 billion raising to allow it to return to AXA Asia Pacific with an all-cash offer.

AMP, AXA Asia Pacific, National Australia Bank

While talk on the bids surrounding AXA Asia Pacific seems to have subsided over the holidays, a fresh rumour that AMP could be planning a whole new approach in a proposal for the wealth manager has emerged. According to The AFR, the latest story is that AMP may be planning a massive $4 billion rights issue, which could allow it to offer an all-cash alternative. The paper notes, however, that a revised offer would face legal and commercial issues, but the new take on any deal for AXA is reflective of the burgeoning M&A market. AXA is still to formalise the proposal by National Australia Bank to effectively replace AMP and French-parent AXA SA's already sweetened offer, though its independent directors have endorsed the $13.3 billion bid. NAB surprised the market by announcing it had agreed terms with AXA to buy the company's Australian and New Zealand assets for $4.61 billion, just days after AMP had made a 'best and final' offer which valued those assets at $4.41 billion. The deal still relies on AXA SA agreeing to buy the Asian assets from NAB. The process will be even lengthier than expected because AMP has an exclusivity agreement with AXA SA which remains in place until February 6. Staying with NAB, The Australian reports the bank became the first major corporation in the world to enter the primary credit market this year. Yesterday, NAB announced a $US1.75 billion ($A1.9 billion) bond deal divided into two tranches – $US1.25 billion of three-year fixed-rate notes launched at 87.5 basis points over US Treasuries and a separate $US500 million three-year floating note. NAB was advised by Bank of America Merrill Lynch and HSBC Securities. This is reminiscent of NAB's move almost exactly a year ago, in which it took advantage of the federal government's funding guarantee, raising $US2.5 billion through a bond issue to US investors.

M&A market

In terms of global deal making, Australia is said to be leading the world out of the slump in mergers and acquisitions. Thomson Reuters figures show local activity is up 33.5 per cent or $US155.2 billion in 2009 – one of the only areas globally that saw any increase. Bankers told Reuters that given Australian companies raised about $100 billion last year in efforts to cut debt, many are now able to make acquisitions by leveraging up their balance sheets. Credit Suisse co-head of investment banking, Rob Stewart, told Reuters there will be much more of a balance between equity and recapitalisation and M&A related activity this year. The league tables showed Goldman Sachs as the top adviser last year followed by Macquarie. Australian-based law firm Allens Arthur Robinson was named as one of the top two busiest M&A firms – accounting for $US248.6 billion in deals globally. Chairman and co-head of M&A at Allens, Ewen Crouch, said the Australian picture is still mixed, with Australian inbound activity up by 7.8 per cent, but outbound sitting at a ten year low.

BHP Billiton

Four partners in the Antamina copper-zinc mine in northern Peru have approved a $US1.288 billion ($A1.4 billion) expansion – meaning BHP Billiton has forked out the $US434.7 million required. BHP owns 33.27 per cent of the project and the rest is spread between Xstrata, Teck Cominco and Mitsubishi Corp. BHP said the injection should extend the life of the mine to at least 2029 with the expansion to lift the volume of ore by 38 per cent to 130,000 tonnes per day. Keeping with BHP, and Goldman Sachs has said Asia steelmakers may want to settle annual contract iron ore price with suppliers, including the miner and its rival and joint venture partner Rio Tinto. According to Bloomberg, demand from Chinese mills has seen prices for immediate delivery of the raw material to them more than double from the March 2009 low. Goldman analyst Malcolm Southwood said the biggest urge to lock in prices now is that spot iron ore is trading at a theoretical premium of 80 per cent to the Japanese contract price.

Qantas, AirAsia, Webjet

To aviation, and a day before an expected announcement fo a tie-up between its budget offshoot Jetstar and AirAsia, Australia's largest carrier Qantas ended its 40-year membership of a key Asia-Pacific airline group, Asia Pacific Airlines (AAPA). According to The Age, despite the association having been a breeding ground for alliances, Qantas said it prefers to build relationships directly with other airlines. Industry officials were stunned at the decision, with one telling the paper Qantas had lost the plot and that for airlines the AAPA was the only way of doing business in Asia. On the market yesterday, online travel agent Webjet continued to defy the industry downturn, putting on 14 cents to $2.20 after announcing a 37 per cent rise in the value of all tickets sold for the six months to December 31. The AFR reports the $66 million rise in the second-half was $8 million more than for the whole 12 months to June 2009. Cheap airline tickets are booming for Webjet, and chief David Clarke said consumers were not certain if, or more likely, when, there is going to be another wave of discounting.

Westpac Banking Group

On financials, Australia's largest mortgage broker Australian Finance Group (AFG) said a "large proportion” of its business last month came from disgruntled Westpac customers who had decided to leave the bank after its market-leading interest rate rise. Fairfax says AFG wouldn't reveal numbers, but it said refinancing for the year was pushed to a high due to Westpac's move, and made the Commonwealth Bank its largest source of mortgages. Typically, Westpac has disputed the comments, and said new lending remained strong – with no irregularities regarding refinancing.

Wrapping up

As the world's largest building opened in Dubai yesterday, a local company was beaming, with Melbourne-based Cox Gomyl showing off its $8 million design and construction contract to clean the Burj Dubai tower's 24,000 windows. To food, and the M&A figures certainly ring true in the situation facing Kraft Food, Cadbury and now Nestle. Overnight, Kraft sweetened its hostile takeover of the UK confectioner, though it was immediately dismissed as being too low. To further add to the melting pot, Warren Buffet's Berkshire Hathaway added its two cents (which it can as the largest investor with a 9.4 per cent share). Buffet indicated he thought using Kraft shares to fund the acquisition was too expensive. Also, after refuting suggestions it would make a counter offer for Cadbury, Nestle announced it was buying Kraft's frozen-pizza operations in the US and Canada for $3.7 billion cash. On weapons, producer Metal Storm's shares soared 20 per cent as it scrambled $20 million in much-needed financing from London-based hedge fund Global Emerging Markets. Bloomberg is reporting the risk of a bond default by Wesfarmers, on speculation it may bid for the assets of collapsed miner Griffin Coal. Deutsche Bank figures showed credit-default swaps on the diversified conglomerate climbed three basis points to 87.5 basis points in trade just before noon – signalling a decline in perceptions of creditworthiness. To Asia, and there is set to be a lot of movement in deals in the unlikely Chinese media industry next year. According to Reuters, more than a dozen private equity funds are raising yuan-denominated funds to invest in media-related sectors. A deal of this nature which has already taken place was from Hony Capital, backed by PC maker Lenovo Group, which bought a minority stake in IPO-ready Phoenix Publishing & Media Group. In Japan, there are reports that Sumitomo Mitsui Financial Group is planning a $US8.7 billion share sale for potential acquisitions in Asia. To media, and Rupert Murdoch's Newscorp sold film review site Rotten Tomatoes to Flixster for an unknown sum. News Corp bought the site in 2005 for $US650 million. Also, the New York Times reports Apple bought mobile advertising company Quattro for an estimated $300 million, marking the company's first move into advertising – competing with Microsoft, Yahoo and Google.

Madeleine Heffernan is on leave, returning January 11.