BREAKFAST DEALS: iSelect take-off

Insurance comparison website iSelect sees strong demand for its offering, while Echo Entertainment leaves the door ajar to James Packer's Barangaroo.

This morning, iSelect will become the second significant Australian IPO in as many weeks, despite the turbulent markets. Echo Entertainment has made an interesting move for the blessing of the New South Wales government. Meanwhile, Equity Trustees is pitching hard to The Trust Company and BHP Billiton is selling stakes in the Pilbara.


Against the noise of growing volatility, the Australian stock market will get its second major IPO in two weeks after a long period of thumb twiddling.

Insurance comparison website iSelect received strong demand for its initial public offering at $1.85 a share, which equates to a valuation of almost $480 million.

Around $185 million was raised from the shareholders selling out, which included the Nine Entertainment-Microsoft joint venture Mi9, the company behind Ninemsn. The pair sold their 62 million shares, as expected, for $113.5 million.

iSelect’s float comes on the back of the successful listing of fertility company Virtus Health, which is still trading comfortably above its issue price with a market cap of $362 million.

It’s a solid performance by Virtus, which launched itself onto the ASX amid growing stock market volatility. iSelect’s timing is even more unfortunate.

Since the Federal Reserve began hinting that it could offer a timetable for the withdrawal of QE3, global stock markets started getting choppier. Last week’s revelation from Ben Bernanke combined with some poor news out of China make for a terribly volatile week, especially in a country that’s been significantly affected by unconventional monetary policy and is awfully reliant on China – Australia.

Volatility is the enemy of stock market listings and even a money-starved investment bank might have advised against floating in the lead up to Bernanke’s comments if it had a crystal ball handy.

But Virtus’ positive experience in conditions that were far from ideal shows that the Fed-related headlines can sometimes give the impression that every trade at the time of printing was made on the back of one speech by a guy with a beard.

It’s not the case. A good business will get recognition from potential investors, particularly when they’ve been starved of new opportunities for so long.

Best of luck to iSelect in its debut session.

Echo Entertainment, Crown

Echo Entertainment finally unveiled its $1.1 billion casino revamp plan over the weekend, which has been submitted to the New South Wales government against rival James Packer’s Barangaroo project.

Or so it seemed.

Echo chairman John O’Neill rejected recent jabs from Packer that the company would need to raise money, arguing that the 2019 proposal is far enough away for the company to lean on its existing reserves.

Speculation has been abounded that Echo would have to tap investors given the capex required in Sydney and another proposal in Queensland. Alternatively, it could sell assets.

But he also unveiled a proposal that could act as a wedge for Premier Barry O’Farrell, who has had a somewhat sketchy relationship with Echo, owner of The Star.

While Echo would still prefer so its casino monopoly to remain in place, it has thrown up the idea of Packer being allowed to build his dream casino.

But there are two important conditions.

The first is that Echo would cough up the $250 million for a 15-year extension for its existing exclusivity that ends in 2019.

The second is that Packer would be required to stick to Crown’s promise that the Barangaroo site would only target Asian high-rollers.

So O’Neill wants to corner Packer’s proposal and save a buck at the same time.

The New South Wales government is expected to make a decision over coming weeks. Let’s see how the dice land.

One wonders what Echo major shareholder KT Lim thinks about all this.

Equity Trustees, The Trust Company, Perpetual

Equity Trustees (ET) has stretched itself a little further to overcome much larger rival Perpetual in the race for fellow financial services player The Trust Company (TTC).

ET has bumped up its offer to 37 shares from 34 shares for every TTC share held, against Perpetual’s 0.1495 share offer.

The smaller suitor has also dropped its request to look at TTC’s books before hand, which probably underlines just how little it’s got left in the tank.

Still, it probably won’t be enough to get the deal over the line.

Both companies are proposing a 22 cents special dividend, but this is really a scrip offer.

At last trading prices, the equity component of Perpetual’s deal is worth $5.81 a share, which is still superior to ET’s at $5.64.

In essence, a big company like Perpetual, with high liquidity, offers TTC shareholders a chance to cash out, while a smaller player like ET has to sell itself as a growth opportunity.

You can see this sentiment transparently in chairman Tony Killen’s latest comments.

“Our improved offer is materially superior for Trust Company shareholders seeking growth in future shareholder returns rather than seeking to cash out now,” said Killen on Friday.

“In addition to the impact of the synergies on the merged company’s share price, shareholders will be well positioned to receive higher dividends compared with the competing scenario.”

BHP Billiton, Itochu, Mitsui

Mining giant BHP Billiton has offloaded a 15 per cent stake in its Jimblebar mine in the Pilbara for $US1.5 billion ($1.64 billion) to two Japanese conglomerates.

Itochu is stumping up $US800 million and Mitsui is forking out $US700 million for 8 per cent and 7 per cent stakes, respectively. This neatly values the company at $US10 billion.

The deal is still subject to approval from the Australian Foreign Investment Review Board.

Wrapping up

Ten Network is understood to be at odds with regional affiliate Southern Cross Media over the length of their next deal as the potential dismissal of the 75 per cent reach rule continues to hang over the sector.

The Australian Financial Review understands that Southern Cross wants a three year deal, but Ten wants something shorter just in case a Coalition government kills the reach rule, opening the door to a bunch of mergers.

Elsewhere, Allmine Group has collapsed under a debt pile owed to Westpac Bank and the federal government.

Westpac has appointed administrators to the company that once included James Packer’s Ellerston Capital as an investor.

And finally, Charter Hall Retail is offloading five Polish shopping centres (we refuse to call them malls here) for $60 million for a slight discount.

The centres that hold 330 specialist retail stores between them are being sold at a 4.6 per cent discount to book value.

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