BREAKFAST DEALS: Jilted Billabong

Billabong soldiers on following its brief encounter with Bain Capital, while the ASX wins the first round of battle over bookbuilds.

Billabong International might only have one surfing buddy, but there’s a compelling argument to say the wave is still strong enough to get it a solid score. The Australian Securities Exchange has found support for its proposal to take on the investment banks in the business of bookbuilds. Meanwhile, Sunland has done a hotel deal with Chinese investors as its name gets tagged to the Qantas Airways-Emirates deal in Canberra, Seven West Media is apparently very keen on cricket rights and Fortescue Metals Group settles with an old lender.

Billabong International, TPG Capital

There’s a case to be made that Billabong International is worse off now than it was 16 days ago.

The embattled retailer’s share price plunged 7.3 per cent to $1.34 after announcing the second mysterious bidder, widely reported to be private equity giant Bain Capital, had pulled out of talks just two weeks in.

The company’s market cap has now sunk to $638 million, well below the $696 million that its bidders were zeroing in on.

Billabong stock was riding high – relatively speaking – as the market dreamed of a bidding war between Bain and TPG Capital. The former is still in the due diligence game with an indicative, non-binding proposal of $1.45 a share.

On the face of it, Billabong shareholders are staring at a scenario where they’re back to one bidder, having watched another potential rival run screaming for the hills after taking a look at the books.

But the stock is not reflecting that, with Billabong shares trading noticeably higher than they were before the Bain offer was announced.

The prospect of a bidding war has evaporated, but private equity firms don’t really do bidding wars.

With TPG much further down the track in its talks with Billabong management, the most likely role that Bain could have played would be to hold TPG to its current $1.45 indicative offer. Perhaps it could enhance it slightly.

However, TPG has shown a commitment to the Billabong play for quite some time now. Remember that $3.30 proposal that Billabong founder Gordon Merchant knocked back was lodged in February.

We’ll never know the reason as to why Bain walked away from TPG. Perhaps they don’t believe in the turnaround scenario spelled out by chief executive Laura Inman.

It doesn’t matter to some extent. TPG has been stalking Billabong for seven months now. It’s persistence towards Billabong is just as compelling a narrative as Bain’s flight of fancy.

Australian Securities Exchange

The market operator has reportedly won crucial backing from fund managers and shareholder advocacy groups in its battle with investment banks over the spoils of bookbuilds from IPOs and capital raisings.

On Wednesday, the Australian Securities Exchange unveiled a plan to run bookbuilds itself, something usually conducted by the investment banks, on behalf of companies raising cash.

Given the condition of the Australian M&A market, the move by the ASX is all the more likely to create sustained opposition from the investment banks. But the market operator has some support outside the investment banks.

The Australian Financial Review reports that Perpetual head of Australian equities Matt Williams and Australian Shareholders Association chief executive Vas Kolesnikoff have thrown their support behind the plan.

The greatest advantage is that companies will be able to raise money from shareholders directly, rather than brokers being the end of the line. It would all take place in an open market.

The question that investment banks are asking in return is whether large companies will want to chance the diversity of their capital raisings or IPOs. They’ll argue that they play a role in making sure that registers end up with the right people on that.

That argument doesn’t have a good whiff about it.

Sunland Group, Qantas Airways, Emirates

Gold Coast property firm Sunland Group has apparently offloaded the Palazzo Versace Hotel to what are suspected to be Chinese investors.

Sunland collected $68.5 million for the sale, which was initially expected to fetch something closer to $80 million when it flagged in April.

Two media reports point to Chinese buyers. The sale still has to get past the Foreign Investment Review Board and the House of Versace, which still controls the name.

By sheer coincidence, Sunland’s name has been linked to a totally unrelated deal.

Liberal Senator Helen Kroger has questioned whether the proposed Qantas Airways deal with United Arab Emirates carrier Emirates could undermine Australia’s commitment to human rights.

Speaking to the Senate yesterday, Kroger was specifically standing up for two Australian businessmen who’ve been detained in the Middle Eastern country since 2009 on charges of corruption related to a Sunland property deal.

Their names are Matthew Joyce and Marcus Lee.

Cricket Australia, Nine Entertainment, Seven West Media

Cricket Australia is ideally positioned to collect substantial winnings from the next round of broadcast rights agreement, which is set to begin when Nine Entertainment’s current contract expires in March.

Nine has had the cricket for more than three decades, and it sometimes shows in the commentary box.

The timing is not ideal for Nine, which is currently staring at a change in ownership. Current owner CVC Asia Pacific is waving goodbye to managing director Andrew Mackenzie as Nine’s hedge fund lenders jostle with mezzanine debt lender Goldman Sachs over the final deal.

According to Fairfax newspapers, media sources indicate that Seven West Media is "desperate” to secure the rights, which are currently believe to be worth $350 million a year.

Fortescue Metals Group, Leucadia

Iron ore miner Fortescue Metals Group appears to have used its new $US4.5 billion, five-year debt facility with Credit Suisse and JPMorgan very wisely.

Founder Andrew ‘Twiggy’ Forrest and chief executive Nev Power have decided to buy back the unsecured note from Leucadia National, a New York investment firm, for $US715 million.

Leucadia was one of the first firms to throw serious support behind Forrest and were well served for their faith. You might remember bits and pieces of news showing the company selling down its stake in Fortescue.

All this time, however, it’s been sitting on this note that cost it $US100 million that reaped it $US1.2 billion in profits over six years.

The reason for this astronomical figure is the note entitled Leucadia to 4 per cent of the freight on board revenue from the Cloudbreak and Christmas Creek mines. The iron ore price then spiked and the New York firm had the deal of all deals.

As Business Spectator’s Stephen Bartholomeusz explains: "With production from those mines destined to increase significantly, they could have become even more expensive. They’ve also been the subject of lengthy litigation between the companies over the way in which the ‘interest’ on the note is payable.”

"By redeeming those notes while the iron ore price is at relatively low levels and ahead of the ramp-up of production from Cloudbreak and Christmas Creek, Fortescue has taken advantage of its crisis – and the extra $US900 million it borrowed – and turned it into an opportunity.”

It’s the Twiggy that just won’t snap.

Genting Singapore, Echo Entertainment

Breakfast Deals has to correct the ledger.

Yesterday, this column reported that Malaysian billionaire KT Lim had reduced the stake in Echo Entertainment held by Genting Singapore, only for it to be picked up be another arm of the Genting empire.

That was wrong. Reports have pointed towards Genting Hong Kong picking up the stock and the branch has said it remains committed to acquiring a larger stake in the company, but there’s no confirmation that this has occurred.

Some outlets have reported that the 4.8 per cent block could end up in a mixed hand of local and international investors.

Here’s a brief crash course in the Genting ownership maze.

It has five listed public companies, starting with the holding company Genting Berhad, which is listed on the Malaysian Stock Exchange.

This company owns a slight majority of Genting Singapore from the Singapore exchange, along with a almost 50 per cent of Genting Malaysia and 54.6 per cent of Genting Plantations, which are also listed in Malaysia.

To make matters more complicated, Genting Malaysia holds over 18 per cent of Genting Hong Kong, which is listed on the Hong Kong Stock Exchange.

If this were a game of Twister, the call to Lim would be "Right foot yellow, and green, and blue, and red…and then more green.”

Jokes aside, Breakfast Deals apologises for the mistake.

Wrapping up

In resources, keep an eye out for any movement from Nathan Tinkler at Whitehaven Coal. The Australian Financial Review reports that brokers are starting to make some signs about shares becoming available.

It could amount to nothing, or it could be someone other than Tinker. But given the apparent cashflow problems he’s been having, it’s something to look out for.

Meanwhile, coal-seam gas company Dart Energy is spinning off its international exploration arm into a new listed vehicle on the London Stock Exchange.

China’s Shandong Gold Group looks set to take a majority stake in Focus Minerals with a $227.5 million placement.

Ten Network’s $145 million sale of outdoor advertising business EYE Corp has received approval from the competition regulator.

It wasn’t anticipated that the Australian Competition and Consumer Commission would stand in the way of the deal with oOh!media, which is owned by Champ Private Equity. But it’s finally signed off on.

And finally, Optus owner Singapore Telecommunications has continued with its quest to build up its applications expertise with the purchase of New York’s Pixable, a photo-sharing app developer, for $US26.5 million ($25.2 million).


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