BREAKFAST DEALS: Macarthur resistance

Macarthur Coal plays hardball with suitors Peabody Energy and ArcelorMittal, and what started off as a friendly approach could turn into a war. Meanwhile, Telstra's structural separation plan gets up the nose of Optus, while the ACCC takes some inspiration from the UK as it decides the eventual fate of the $2 billion Foxtel-Austar deal. Elsewhere, BHP Billiton could play a key role in the political stoush in South Australia, Atlas Iron may sell some of its prospects to Asian buyers and Kingsgate buys a silver mine in New South Wales.

Macarthur Coal, Peabody Energy

The takeover play for Macarthur Coal has turned from nice to naughty in the blink of an eye after the coal miner made it clear to its suitors, Peabody Energy and ArcelorMittal, that their $15.50 a share offer just isn't going to pass muster. Unsurprisingly, the suitors have promptly decided to make their pitch directly to Macarthur shareholders. The target's board was remarkably forthright with regards to what was on the table and what they wanted to see. The Peabody-Arcelor joint venture, PEAMCoal, was willing to pay up to $16 a share, plus the dividend, for Macarthur, but the miner's board took exception to the caveat that they would not be allowed to engage with any other prospective suitor. In turn, the board returned fire with some shots of its own, telling the suitor that the $16 a share bid is acceptable only if the suitors agree to a conditional price increase to $18 a share (plus the dividend) if the offer achieved the 90 per cent level. On top of that, it wants the suitors to allow the payment of an additional dividend of 98 cents a share – to be deducted from the offer price – to its shareholders. This two-tiered bidding structure complete with the extra dividend was never going to please Peabody and Arcelor, hence the position we find ourselves in. The $18 a share number is interesting because it would suggest that Macarthur's board is willing to sell all of the company for that price. Presumably, Macarthur's largest shareholder, CITIC, is supportive of this move and prospective rival suitors will pay close attention to that. That's what Macarthur is betting on, to some extent – that by signposting the level at which it is happy to negotiate, it is going to spur the interest of another bidder. Just how successful Macarthur will be on that will depend on just how willing CITIC will be to sell its stake to a suitor if a bid close to that $18 a share mark is put on the table. Macarthur has no doubt been in touch with other parties given its willingness to pursue its tactic and is betting that Peabody will be willing to pay a higher price for the prize even if a rival suitor is not forthcoming.

Telstra, ACCC, Optus

Telstra may have put its structural separation plan at the altar of the Australian Competition and Consumer Commission but the telco's shareholders hoping to vote on the $11 billion NBN deal may still not get their chance, given that the plan has got up the noses of its rivals, guaranteeing that the regulator's 28-day consultation process will be a heated affair. A key plank in Telstra's plan is the introduction of a 'rate card' that sets out the access price for its wholesale network and allows its rivals to check that they are getting the same price and service as its retail division. That has rather predictably been criticised by Optus which said that the introduction of a rate card doesn't guarantee that Telstra's retail division won't be getting a better deal than the other telcos. Telstra has also acknowledged that it is willing to agree to an independent adjudicator to arbitrate any disputes but added that it won't spend more than $10 million on any action suggested by the adjudicator. Optus has again taken exception to that saying that there's no point having a toothless adjudicator, which will just prove to be another layer of bureaucracy and nothing more. So one can expect Optus to lead the fight as the ACCC begins its consultation and the other telcos will also no doubt pitch in with their two cents' worth. Unfortunately, the reality is that the Gillard government needs the NBN deal as badly, if not more, than Telstra and that will be on the mind of the ACCC.

Austar, Foxtel, ACCC, Nine Entertainment

The competition regulator also holds in its hands the eventual fate of the $2 billion Foxtel-Austar merger and The Australian Financial Review reports that the ACCC may be taking some inspiration from its counterpart in the UK with regards to its arbitration. According to the paper, the regulator is taking a close look at the papers released last month by the UK Competition Commission on BSkyB's move to lock in exclusive contracts with six Hollywood studios. The issues raised in that deal echo a similar concern raised by the ACCC, namely that no single pay TV operator should be allowed to have a stranglehold on content. According to the ACCC, a combined Foxtel-Austar will do just that, despite calls by Foxtel and Austar executives that the regulator's definition of the pay TV market is too narrow. In other media news, The Australian reckons that Nine Entertainment's owner CVC Asia Pacific may be having trouble extending the deadline for the repayment of the media company's $2.8 billion senior debt, maturing in February 2013. According to the paper, the rumblings were precipitated after a quarterly update to lenders highlighted that Nine's earnings before interest, tax, depreciation and amortisation for the 2010/11 financial year was likely to come in below expectations. Nine expects things to pick up from there with earnings expected to go up, but the paper suggests that the sluggish final quarter figures have made some lenders jittery and that means some tough negotiations lie ahead.

BHP Billiton

Moving to the miners, it looks like BHP Billiton may end up playing a crucial role in the political power play currently underway in South Australia, with the departure of ousted premier Mike Rann now linked to the negotiations underway between him and the mining giant over expansion at Olympic Dam. Rann decided to step down last Sunday to make way for Jay Weatherill but laid down his own terms, saying that he will not depart until he had negotiated an independent agreement with BHP over Olympic Dam. Weatherill, who has the backing of the Labor caucus, has ruled out challenging Rann so the timing of Rann's departure is now linked to how quickly he and BHP reach a deal.

Atlas Iron, Kingsgate Consolidated, Bandanna Coal, Gindalbie Metals

Meanwhile, Atlas Iron boss David Flanagan has flagged the sale of some of the miner's prospects to three Asian suitors. According to The Australian, the company held talks with companies from India, Japan and China over its Ridley and Balla Balla magnetite deposits and the Yerecoin project, with offers ranging between about $50 million and $400 million. Meanwhile, gold miner Kingsgate Consolidated has turned its attention to silver with the $1.1 billion miner striking a $75 million agreement to buy the Bowdens silver project in New South Wales. Kingsgate is acquiring the project, expected to be a three to four million tonne a year mine, from a wholly-owned subsidiary of Silver Standard Resources. Under the terms of the deal, Kingsgate will make a $35 million cash payment, followed by two $5 million payments on December 31, 2011 and July 30, 2012, respectively. Silver Standard will also be given 30 million Kingsgate shares. Kingsgate said it plans to fast-track the project through a Bankable Feasibility Study and Bowden could be in production by early 2014. Elsewhere, Gindalbie Metals said that it may take a small equity stake in the beleaguered multi-billion-dollar Oakajee port development, India's NTPC has pulled out of the race for Bandanna Coal and there is talk that Perth-based mining developer TNG is set to hand control of the company to a state-owned Chinese group. TNG entered a trading halt yesterday pending an announcement on corporate funding and an update on the Mount Peake iron-vanadium project.

Wrapping up

Toll road operator ConnectEast's investors, who have been clamouring for a higher offer from the global consortium led by CP2, can take heart from the fact both RBS and Merrill Lynch reckon they are justified in asking for a sweetener. Unfortunately for the investors, the chances of a counter-bidder appearing seem negligible and there is little the target's board can do to prevent CP2, which already holds a 35 per cent stake, from creeping its way into control. Still there is a slim chance that CP2 may sweeten its bid slightly to win over the target's shareholders. Meanwhile, the AFR reports that the strategic review of Pacific Equity Partners–owned Griffin Biscuits has already revealed some issues with regards to the valuation of the business. According to the paper, Goldman Sachs and UBS, which are conducting the review, are already having trouble convincing investors about the $790 million price tag. Finally, talk of a renewed merger push between Bank of Queensland and Bendigo and Adelaide Bank has been categorically dismissed by both parties but it's hard to put a lid on the speculation that the change of leadership at BoQ may be a catalyst for talk in the future.