BREAKFAST DEALS: Macquarie moves

Macquarie's latest sale raises a few questions, while speculation takes an interesting turn at IAG.

The aura surrounding investment banks took a battering during the global financial crisis and the time investors devote to their moves has ebbed somewhat in the aftermath. But wise onlookers will remember they’re filled with smart people. Hence, Macquarie’s sale of a stake in Britain’s Thames Water raises a few questions: Is it the sluggish British market, or an easing love of water utilities? Or is it just time, having clenched the asset five years ago? Meanwhile, Insurance Australia Group rumours have taken an entirely different turn, with Mike Wilkins apparently shopping in Malaysia. Elsewhere, APA Group might have to do better to win Hastings Diversified Utilities Fund, there’s a handful more deals in the pipeline for the coal sector and Beach Energy mightn’t have to tap its shareholders after all.

Macquarie Group, Abu Dhabi Investment Authority

Macquarie Group has quenched its thirst for liquidity – perhaps counter-intuitively – by selling down part of its stake in UK utility Thames Water, the country’s largest water company. The Australian investment bank sealed the deal with Abu Dhabi Investment Authority over a 9.9 per cent stake through the consortium it leads called Kemble Water Holdings. The value of the transaction was not disclosed, but Macquarie purchased the asset for £8 billion ($12.4 billion) in October 2006, which was well short of the £12 billion price tag former German owners RWE had hoped for – £3.2 billion of that was to settle Thames debt. ABIA is the giant sovereign wealth fund for Abu Dhabi, United Arab Emirates. According to the Sovereign Wealth Fund Institute, ABIA has $US627 billion ($621.7 billion) in assets under management.

Insurance Australia Group, Kurnia Asia

Investors in Insurance Australia Group would be no doubt intrigued about what’s going to happen to their company. The latest word is that IAG may be trying to move into Asia by purchasing a stake in the general insurance unit of Malaysia’s Kurnia Asia. According to The Star, Malaysia’s highest circulating newspaper, sources indicate that Kurnia Asia will probably announce a deal by the end of the week.

The newspaper says Kurnia would probably consider selling the unit for 2.5-3 times book value, which would be around 1.8 billion to 2.2 billion ringgit ($571.4 million to $698.4 million). Malaysia currently limits foreign companies from taking more than a 70 per cent stake in local insurance companies. IAG chief executive Mike Wilkins has indicated that he wants to boost the company’s total written premiums from Asia to 10 per cent of total contributions by 2016 – this is a quick way of going about it.

The news follows a report that Wesfarmers was having a look at Insurance Australia Group, which has a market cap around $6.5 billion. The theory is that Wesfarmers has to either increase its insurance presence, or dump it entirely and given that its existing operations are predominantly in Western Australia, picking up the east-coast insurer would be an ideal fit.

Hastings Diversified Utilities Fund, APA Group

APA Group might have lobbed a $1.06 billion bid for Hastings Diversified Utilities Fund, but the target’s shareholders aren’t that impressed. APA is offering an off-market, 50 cent cash and 0.326 APA share for each HSF security, which values the target at around $2.00 a share. That’s just a 12 per cent premium on its previous trading price, which feels a bit opportunistic. It’s a 21 per cent premium to the three-month volume weighted average price, but that still isn’t setting shareholders on fire with the stock finishing the session at $1.90. APA is a gas pipeline owner and Hastings, owned by Westpac Bank’s Hastings Funds Management, has a number of assets that might suit it nicely.

APA already owns 20.7 per cent of HDU, which means the offer is hardly surprising. But media reports indicate that the target’s chairman Alan Cameron didn’t even get a phone call before the offer from his counterpart Len Bleasel dropped – hence the target’s board has recommended shareholders do nothing. HDU owns Epic Energy’s three natural gas transmission pipeline systems, along with other systems in South West Queensland and the Pilbara and Bleasel sees many of these as a natural fit for APA’s existing footprint. He might have to up the price, however.

Ambre Energy, Bandanna Energy, Coalworks, Mitsubishi, Oakajee Port & Rail

The coal procession continues, with thermal coal miner Ambre Energy reportedly looking into potential advisers for a float around the middle of next year. According to The Australian, Ambre is set to raise $100 million next year, but this belies the size of the company. The coal exporter has large cornerstone investors like Resources Capital Funds that will hold on to their stakes, with the IPO set to give the company a market cap of between $800 million and $1 billion. Chief executive Edek Choros says he expects to name advisers by January, the newspaper reveals.

Meanwhile, The Australian Financial Review reports that Bandanna Energy has kept UBS as its adviser while it looks for a joint venture partner, after coming up empty handed from a sales process earlier this year, while Coalworks has appointed Pitt Capital Partners amid speculation that Boardwalk Resources will make a bid once it’s in the Whitehaven stable. And News Limited reports that Mitsubishi, having acquired the other 50 per cent stake in the Oakajee Port & Rail project, will spend up to 18 months looking for a new partner in South Korea, India and Japan, with South Korean steelmaker POSCO among the firms in the running. Chinese backers will also be considered.

Beach Energy

Some analysts have thought that Beach Energy might have to hit shareholders with a capital raising, but the oil and gas company is reportedly looking to hook a partner for its operations in shale gas. The Australian Financial Review understands that Beach Energy, advised by Citigroup, opened up a data room three weeks ago for its shale gas interests at Cooper Basin. Earlier this year Beach said a gas flow of up to two million cubic feet of gas per day had been achieved at its Holdfast-1 exploratory well. With so much interest in the region, there’s a suite of big players that could take an interest in Beach and remove its need to right its balance sheet through shareholders.

Downer EDI

Downer EDI has offloaded its architectural and design business CPG Asia for $147 million to China Architecture Design and Research Group. The agreement follows a review Downer announced in August of its general consultancy business and its overall strategy, which has left investors underwhelmed – the stock is behind the ASX200 by 18 per cent this year. Managing director Grant Fenn said the impact on the company’s bottom line for the current financial year would be "neutral”. CPG Asia delivers architectural and engineering design services throughout Asia, particularly Singapore, for infrastructure and building projects.

Wrapping up

Australian billionaire James Packer has ruled out buying back into debt-laden Nine Entertainment on the basis the Seven Network’s position is too strong. That’s a blow for CVC Asia Pacific, which is trying to refinance $3.7 billion of debt, with most of the concerns centering on the mere size of the debt and the slumping advertising market. Now a former owner says its competitor is just too good.

Speaking of stock picking, John Sevior has confirmed that he’s not returning to Perpetual after six months' long-service leave, which has sparked speculation that he could be in the process of building his own firm – one that could pinch up to $3 billion in funds from his former employer as investors follow the master.

In order to help attract a buyer for Fletcher Jones, administrator Cor Cordis says 15 stores will be closed – that’s a third of all stores. Managing partner Bruno Secatore said it was a necessary move to make sure the almost 100-year-old business, which owes staff about $1 million and creditors over $8 million, stays around in some form.

And finally, equipment hire company Onsite Rental Group is looking at a potential IPO next year, with chief executive Mark Rich starting to speak to investors, The Australian Financial Review reports. Onsite is 60 per cent owned by private equity company Next Capital, with management holding the rest.

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