BREAKFAST DEALS: Mallesons coup

Mallesons' Asian merger is a game-changer for the industry, while David Gyngell could be a big winner from a Nine takeover.

Australian law firms have traditionally aligned themselves with the US or the UK and they’re structured not to turn on a dime. That’s why the merger between Australia’s Mallesons Stephen Jacques and Hong Kong’s King & Wood is so significant. It doesn’t just mark a game-changing legal merger that forms the largest firm outside the US or the UK, but heavily underlines the growing importance of China and Australia’s proximity to it. Meanwhile, Nine Entertainment chief executive David Gyngell is reportedly set to win big if the network’s hedge fund lenders can get owner CVC Asia Pacific out of the way. Meanwhile, Yanzhou Australia is thinking bigger is better in 2012 when it comes to its expected float, Tox Free Solutions has made it two acquisitions in as many days by snapping up assets from Dolomatrix and Sir Ron Brierley’s return to the ring has hit a snag.

Mallesons Stephen Jacques, King & Wood

Australian law firm Mallesons Stephen Jacques has finally secured an international merger partner and turned many heads doing it. The firm has won a historic deal with Hong Kong firm King & Wood, which will establish a verein partnership across the two businesses and will merge their respective Hong Kong businesses. King & Wood chairman Wang Junfeng will chair the combined firm, while Stuart Fuller, the incoming chief executive partner to replace Robert Milliner on January 1, will assume the role of global managing partner. Fuller will be based in Hong Kong and the merger will become effective on March 1 next year, where the two firms will be rebranded King & Wood Mallesons.

Having failed in its attempts to get a deal with top-tier UK firms Clifford Chance and Linklaters, Mallesons has grabbed a slice of history. It’s expected that Australian firms will seek partnerships in the UK or the US, so a tie-up with a Hong Kong firm with obvious advantages for business coming out of China is being seen as something of a game-changer. It won’t just be the largest law firm across Asia, but the biggest situated outside the US or the UK. It’ll boast 380 partners and 1800 lawyers, and will be quite uniquely placed to capture the growing amount of business coming out of China.

While the Australian, Hong Kong and Chinese operations will support each other, the profit pools of the three business arms will remain separate. The Australian Financial Review reports that this is partly due to the fact that Chinese regulations prevent Chinese lawyers from sharing profits with foreign firms.

Nine Entertainment, CVC Asia Pacific

Respected Nine Entertainment boss David Gyngell could turn out to be a big winner if the television network’s lenders lose patience with private equity owners CVC Asia Pacific. According to media reports, US hedge funds Oaktree Capital and Apollo Global Management – both with large portions of Nine’s debt to wield – are formulating a plan to remove CVC from the picture and take control of the debt-laden network. The Australian Financial Review understands that the hedge funds have held discussions with Gyngell and, having been impressed by the TV executive, could allocate him some equity in Nine if they’re able to take control.

CVC has just pulled the pin on a second proposal to restructure Nine’s $2.7 billion in senior debt. A deal is apparently in the works for another almost $1 billion in mezzanine debt with Goldman Sachs, but that could turn out to be irrelevant if the hedge funds triumph. Nine has a suite of enticing assets like Ticketek, Ninemsn and Cudo that could be offloaded in the event that someone needs to make a quick buck, whether it’s CVC trying to buy some time or the hedge funds wanting to recoup some of their debt spending.

Yanzhou Australia

In no small way, Yanzhou Coal carries the hopes of investment bankers around the country. As part of its deal with the government over the acquisition of Felix Resources for $3.5 billion, Yanzhou has to list at least 30 per cent of its Australian assets on the local sharemarket by the end of next year. Given the slim pickings of 2011 and that the Chinese firm is in the coal business, onlookers will be hoping that nothing serious goes wrong with this one.

Yanzhou Coal board secretary and deputy general manager Zhang Baocai won’t suffer such pessimism. In an interview with News Limited, Zhang says Yanzhou is planning to list all of its Australian assets next year, not just the Felix Resources ones. "We've done the initial preparation and are confident of completing (the listing) by the end of next year," Zhang said.

Dolomatrix, Tox Free Solutions

Waste management company Tox Free Solutions is on the acquisition trail. Having put in a bid for Mackay Maintenance Services at $4 million to secure a presence in the Bowen Basin, Tox Free has lobbed a $58 million offer for a stable of assets from Sydney’s Dolomatrix International. Tox Free is after the Chemsal packaged chemical waste business and the BCD Technologies destruction services arm, as well as the environmental consulting business Entech Industries and Waste Audit. Dolomatrix shareholders have been promised a capital return of 39 cents a share and given that the stock was trading at 26 cents before the announcement, the targets’ directors have voted in favour of the proposal that will hollow out most of the company.

Just to make sure, the directors have appointed Lonergan Edwards and Associates to prepare an independent report on the proposal and sought KPMG Corporate Finance to act as financial advisor. It appears the only likely thing to get in the way of this bid would be an offer from previous suitor Transpacific. The waste management company is sitting on 22 per cent of the company and bought in at a higher price than on offer. Major shareholders Weston Aluminium and CVC Limited have already indicated they intend to support the deal.

Hastings Diversified Utilities Fund, APA Group

Hastings Diversified Utilities Fund has told suitor APA Group that if it wants to combine its existing gas pipeline footprint with that of its target, it’d better put up some more cash. HDU’s board recommended that shareholders reject the $1.8 billion cash and scrip bid, which only offers 50 cents cash, with the rest of the $2 offer coming in the form of scrip. However the suitor has managed to gain some ground, with the company’s share in HDU lifting to 20.71 per cent from 19.77 per cent, according to documents filed to the ASX.

BlueScope Steel

BlueScope Steel shareholders have turned their back on the retail component of the company’s $600 million capital raising, leaving underwriters Credit Suisse with a $135 million shortfall. Although earlier reports indicated that it could have been a lot worse, the ASX granted BlueScope a trading halt yesterday to give Credit Suisse enough time. BlueScope told the market that small investors took up only 310 million of the 649 million shares that were on offer at 40 cents each – that’s a 52 per cent shortfall. BlueScope is currently feeling the pinch from higher input costs, a low steel price and a high Australian dollar. While the extra funding will help correct their balance sheet, the poor shareholder turnout for the four-for-five rights issue means many don’t believe the company’s turnaround strategy will work and are happy to let their shares be diluted.

Coalworks

Expectations are growing that Coalworks will be the next coal player to fall in this period of consolidation. Having appointed Pitt Capital Partners to consider the implications of the $5.1 billion merger between Whitehaven Coal and Aston Resources – because the latter’s Boardwalk Resources, which owns a 19.9 per cent stake in Coalworks, will be included – valuations are starting to flow in. According to News Limited, BBY analyst Mike Harrowell says Coalworks is worth around $1.54 a share, based on the implied value from the Boardwalk transaction. With the company’s share price closing at 64 cents yesterday, the market is keeping the powder dry.

Telstra Corp

Telstra Corporation has secured crucial operating licenses necessary to expand its footprint deep into Asia. The telco has been granted licenses for Singapore and Japan, only a few months after getting similar permits for India. While Fairfax reports that Telstra International group managing director Tarek Robbiati has ruled out delivering Telstra-branded services to homes because it doesn’t have its own distribution network in the region, the Singapore license means that Telstra can now own infrastructure and it also has operational infrastructure implications in Japan.

Wrapping up

Sir Ron Brierley’s ‘unretirement party’ at India Equities has been crashed by the ASX, with the market operator refusing the company’s request to have the delisting of target Adelaide Managed Funds’ Asset Backed Yield Trust delayed. India Equities raised some eyebrows by registering its interest at almost the last conceivable limit for a trust that’s been eyeing a delisting for ages. Speaking of corporate Australian royalty, former consumer watchdog boss Graeme Samuel has won a $5 million suit against his old partners in the Direct Factory Outlets business.

Qantas Airways will have to do a bit of juggling with the resignation of Chong Phit Lian, a respected chief executive of its budget airline Jetstar Asia. The low-cost Asian carrier is backed by Qantas but based in Singapore and the airline is in the midst of trying to secure a high-end carrier deal in either Singapore or Kuala Lumpur.

Meanwhile, Investa Office Fund has continued its selling spree as it repositions towards Australia, by offloading its 50 per cent interest in the NVH office building in Paris. The stake was sold for €138.7 million ($A180 million) and chief executive Tino Tanfara might be happy to have the funds coming home because the asset was purchased for €155.4 million in 2006, reflecting the punishment that European commercial property values have taken – even in a city like Paris. While we’re on property, new Centro chairman Bob Edgar says the US hedge fund owners that account for 70 per cent of the newly formed Centro Retail Trust’s equity, are likely to hold on to their stakes for between 18 months and three years, The Australian reports. Elsewhere, two Leighton subsidiaries, Leighton Contractors and Thiess, have won contracts worth $240 million and $185 million, respectively. Leighton Contractors has been given a 12-month extension on its OneSteel Manufacturing deal for the South Middleback Rangers iron ore site, while Thiess has been given an extra year at the Meandu coal mine in Queensland.

And finally, Media Monitors has snapped up South East Asia-based media intelligence and analysis company MediaBanc for an undisclosed sum, while The Australian reports that REA Group is refusing to rule out more European acquisitions after taking the last 30 per cent of an Italian online classifieds business.