BREAKFAST DEALS: Little sell-outs

Japan's Kirin Holdings snaps up the maker of popular boutique beer Little Creatures, while Fairfax's plans are set to slow Gina Rinehart's push for control.

Boutique beer producers have been put on notice that the two major Australian-based, foreign owned brewers are aware their old staples aren't growing. The latest example is Lion Nathan's big pricetag for Little Creatures. Meanwhile, questions have been raised about whether Fairfax was wise to sell another stake in Trade Me given that it's one of the businesses at the publisher that turns a profit. Elsewhere, James Packer's rival gaming tycoon on the Echo register has reportedly taken a little more, QR National has been given a proposal to lift the weight of the Queensland government from its register and who's selling out of JB Hi-Fi?

Little World Beverages, Kirin Holdings

The producer of iconic Australia brew Little Creatures has become the latest to fall to a foreign buyer.

Little World Beverages has thrown its support behind a $380 million takeover offer from Lion Nathan, owned by Japan’s Kirin Holdings.

The offer of $5.30 a share is an irresistible 40 per cent premium to the $3.79 that the stock was trading at before the announcement. The share price surged 36 per cent to $5.16, which is a modest 2.7 per cent discount to the offer. The market thinks this bid will get up.

The Perth-based brewer was created just over a decade ago but already boasts one of Australia’s most successful boutique beers, something the major producers are increasingly attracted to as drinkers move away from staples like Victoria Bitter, Carlton Draught and XXXX.

It also means that the fledgling White Rabbit brewery in Healesville, Victoria, which is also gaining market traction, will now be owned by a foreign entity.

The last remaining independent brewer in the market of note is Cooper’s, which knocked back a bid from Lion seven years ago, before Kirin swooped in.

Given that the Little World Beverages bid values the company at over 20 times EBITDA, the valuations for Cooper’s will get another look.

However, the staunchly independent brewer has made it clear to the market that it’s not interested in selling. In order to combat the increased competition in the boutique market, Cooper’s has recently diversified into the home-brew market.

Fairfax Media, Gina Rinehart

Fairfax Media chief executive Greg Hywood appears to have pulled the trigger on the company’s restructure to head off a plan for a challenge to the board.

According to The Australian, a group of shareholders was plotting last week to team up with mining billionaire Gina Rinehart to push for an extraordinary general meeting to oust chairman Roger Corbett and other directors.

The move by Fairfax yesterday to announce 1900 job cuts over three years, closure of print facilities, conversion from broadsheet to tabloid format, a digital paywall and the sale of another stake in New Zealand advertising website Trade Me, was always in the works.

But the reaction of some wings of the media house, particularly editorial and printing, was that of surprise, suggesting that staff weren’t at all prepared and that the announcement’s timing had another purpose.

While it might have helped prevent an all-out assault on the board by other shareholders, Rinehart’s pitch for director seats is this morning, if anything, even bolder.

According to media reports, the mining billionaire is now seeking three board seats and the ability to sack editors after increasing her stake in the company to 18.67 per cent.

It’ll be interesting to see just how Fairfax responds to Rinehart’s new demands, given that yesterday’s announcement included a steadfast pledge to uphold the traditions the company has built over the decades.

"While the size is changing there will be no change to our commitment to independent journalism” Hywood said.

For all the attention that Fairfax’s long-awaited decision to face the oblivion of print newspapers – as delivered, at great length, in this morning’s edition of The Distillery – very little attention has been devoted to the wisdom of another sell down in Trade Me.

Fairfax offloaded 59.4 million shares at $2.70, raising $160 million to help the transition from print to online.

As Technology Spectator’s Supratim Adhikari points out, the move was the easiest way for Fairfax to raise cash, particularly when the onslaught from Rinehart would have made a capital raising problematic.

"However, it might not be too long before the board may have to revisit the idea,” writes Adhikari.

"Trade Me is a profitable business and is an integral part of Fairfax's digital division. However, it has limited scope and can't realistically extend its footprint across the Tasman and into the broader digital future that Fairfax is envisioning.”

Aside from the Trade Me sale, nothing that came out of the seismic announcement was actually that surprising. The most concerning thing for Fairfax is that, on some level, yesterday was the easy part.

Echo Entertainment, Genting

Echo Entertainment emerged from a trading halt yesterday safe in the knowledge that chief antagonist billionaire James Packer was prevented by regulations from using the $454 million capital raising as a path to increasing his stake.

Singapore’s Genting, led by gaming tycoon KT Lim, is a different matter.

Big parcels of shares totalling $71 million changed hands yesterday and widespread speculation points to Genting. If correct, this means Lim is now sitting on more than 7 per cent of Echo.

CIMB Australia, a wing of the Malaysian bank, is tipped as the likely candidate. Given that Genting used JP Morgan to purchase its initial 4.9 per cent shareholding in Echo, it would mark an interesting shift for Lim.

It also makes the discussions between Packer and Lim that much more important.

Not long after Genting complicated the battle for Echo with his share purchase, Packer met with the fellow gaming magnate in Macau to, among other things, discuss whether there was any synergy in their respective agenda.

While Packer’s interest in Echo to help bring his plans for a six-star casino to attract Asian high-rollers is well known, Lim’s motivations are unclear.

But a larger stake in Echo would seem to indicate that, whatever his plan is, it’s worth more than a few extra million.

QR National, Queensland Treasury Corporation

Nomura analyst David Fraser has suggested a rather ingenious way of removing some of the stock overhang on QR National: Get the rail haulage company to buy out the Queensland government.

Queensland Treasury Corporation has 34 per cent of QRN, which is approaching the end of the quarantine period that the Queensland government put on the stock when the float occurred in earl 2012.

According to News Limited, Fraser has suggested that QRN could borrow to buy $1.4 billion of QTC’s stake, which is about half.

The play is similar to what some have suggested for Woodside Petroleum. The Australian oil and gas company is struggling with a share price that’s being weighed down by the pending exit of major shareholder Royal Dutch Shell.

Some have called on chief executive Peter Coleman to help Shell reach for the door with a share buyback. But Woodside has indicated that it has spoken to a number of interested shareholders that would be happy to step in for portions of Shell’s stake when the time comes.

The problem for Woodside and QRN, is that the seller wants the price to be as high as possible, while the potential buyers want the opposite.

Wrapping up

While much of this morning has been about big investors buying stock, it’s worth looking at this pressing example of a mystery seller.

According to The Australian Financial Review, a substantial shareholder dropped 5 per cent of JB Hi-Fi on the market yesterday, at $8.40. Apparently, UBS was offering the stock around at that price on Friday, but had to wait until yesterday until buyers could be found.

The question is, who is selling? Hyperion Asset Management and Integrity Asset Management are amongst JB’s largest shareholders. Although it’s entirely possible that UBS, once listed as holding 6.17 per cent of the retailer, was selling on behalf of hedge funds.

Meanwhile in Western Australia, a Japanese government-backed consortium has agreed to purchase a $4 billion-plus equity stake in the Wheatstone LNG project.

It’s a crucial move for the country that’s still reeling from the Fukushima nuclear disaster, as well as an endorsement of Australia’s own growing LNG industry.

Tokyo Electric Power, the company at the centre of the Fukushima disaster, is one of the consortium’s members.

And West-African focused gold company Ampella Mining has come back empty-handed from its quest to find a buyer.

The company announced in April that it would test its potential as a takeover target in the market and despite picking up some interest hasn’t been able to secure a deal.

This despite the share price in Ampella plunging by 40 per cent over that period.

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