BREAKFAST DEALS: M&A malaise

It's been a quiet year for M&A in Australia but the new draft of the ASX continuous disclosure rules trigger memories of the most colourful private equity proposals.

This year has been a quiet one for Australian M&A; next year looks much the same. But what has kept things interesting in 2013 is the steady stream of opportunistic, indicative, conditional private equity proposals that have vexed target boards in terms of value and shareholder relations. Today we look back at some of the memorable ones as the ASX drafts updates to continuous disclosure. Meanwhile, Nine is safely in the arms of its new owners rather than receivers, Ten Network could be set for another capital raising and the Catch of the Day crew are getting hungry.

ASX continuous disclosure

The practice of suitors, and sometimes targets, leaking information to the media about conditional, indicative proposals is certain to continue despite the draft amendments to continuous disclosure obligations.

As Business Spectator’s Stephen Bartholomeusz points out, the episodes surrounding Fortescue Metals Group, James Hardie and Centro have played out since the rules were last updated in 2005. However, only one of those can be reasonably associated with a deal – that’d be Fortescue.

But the uncertainty surrounding continuous disclosure obligations, particularly when it comes to the definition of the word "immediately,” has been viewed increasingly through the window of takeover offers in 2012, especially from private equity.

It’s astonishing to think about it, but here’s a list of companies that have been subject to conditional, indicative proposals this year alone, mostly from private equity firms, that ended up being leaked to the newspapers: Billabong International, Pacific Brands, Spotless Group and PMP.

To that list you can add the most contentious examples, David Jones and Macmahon Holdings. As we all know, the circumstances surrounding those two deals were highly suspicious.

While target boards will sometimes leak details to the media, particularly when their results aren’t flash, it’s usually the bidder in these ostensibly confidential discussions that flashes some details to the media to put the pressure on the other side to start engaging a discussion. Indeed this column reports the fruits of those sneaky disclosures routinely.

While this tactic is no doubt frustrating to the party caught out, the problems for the company in terms of creating uninformed markets are limited. In most of the above examples, trading halts were requested and granted before the opening of the market on the morning the details were reported, giving the target company time to spill the beans.

As Bartholomeusz explains: "The ASX consultation paper emphasises ASX’s willingness to agree to requests for trading halts and says that if a company has been granted a trading halt and then issues an announcement as quickly as it can in the circumstances, it would regard the entity as having complied with the spirit and intent of the rule.”

The one gaping hole in the legislation is the David Jones example and there’s a limited amount that a regulator in a single country can do about it.

The ‘bidder’ EB Private Equity is based in the UK, in an area that isn’t exactly the London financial district. The details of the proposal were leaked to a blog that can’t by any stretch be considered legitimate – click here to see that it hasn’t been updated since July 2, four days after breaking the story about the DJs bid.

While David Jones was criticised for taking too long to establish whether EB was serious or not, proving a negative is trickier as first year philosophy students should be well aware.

Nine Entertainment, CVC Asia Pacific, Goldman Sachs, Apollo Global Management, Oaktree Capital

Exhaustion gave way to relief for Nine Entertaintment chief executive David Gyngell yesterday as a deal was clinched to save the company from receivership.

Gyngell’s wife, Nine presenter Leila McKinnon, could no doubt report something similar after giving birth to the couple’s first child as her husband danced between two of the most important moments in his personal and professional lives.

While the lawyers still need to finalise the documentation, media reports indicate that the deal will take the following structure.

Nine is now debt-free, what a concept! Mezzanine lender Goldman Sachs will receive a 4.5 per cent stake, the senior lenders, led by US hedge funds Apollo Global Management and Oaktree Capital, will get 95.5 per cent and departing full owner CVC Asia Pacific will end up with about $10 million.

From the $1.9 billion that CVC tipped into Nine equity, it marks the private equiteer’s largest ever loss across the world.

The chaos that has characterised the negotiations would be enough to ruffle the best of executives. But in the midst of the arrival of his first born, The Australian Financial Review’s Nabila Ahmed, who’s been the standout Australian journalist on this story, reports that Gyngell managed to seal it with a "personal plea” to the hedge funds to tip in an extra $10 million for Goldman.

Given the fact that Gyngell is the most highly sought-after television executive in the country, it was easily a worthwhile bet for the hedge funds to take.

Besides, the massive discounts that they picked up the senior debt for ensure that a handsome return will be made.

Ten Network, EYE Corp

Things weren’t so buoyant at weakened rival Ten Network, which copped an eyeful (sorry, couldn’t resist) from short sellers yesterday as the possibility of another dilutive capital raising dawned on the market.

Ten’s $145 million sale of outdoor advertising business EYE Corp to CHAMP Private Equity has fallen over, with the company issuing a statement to the market saying it had received an ominous sounding "termination notice”.

"While Ten has reserved its legal position regarding the purported termination, Ten and OMO (CHAMP’s Outdoor Media Operations) remain in discussions with the aim of agreeing to amended sale terms,” Ten said in a statement.

That "reserved its legal position” bit is hopefully not the first sign of a protracted legal battle. Ten needs to sort out its balance sheet and broader strategy as quickly as possible.

The company’s share price plunged 7.5 per cent to 31 cents a pop, which brings the broadcaster to a 63 per cent slump for the year.

More importantly, that’s 20 cents beneath the 51 cents that Ten raised capital at just a few months ago and analysts are lining the company up for another exercise in dilution.

Business Spectator’s Stephen Bartholomeusz points out that some labelled the decision to raise capital while running the EYE Corp sale process as too conservative, now it’s looking decidedly prudent.

One must remember that during that last capital raising the company’s headliner major shareholders, billionaires James Packer and Gina Rinehart, chairman Lachlan Murdoch and WIN TV’s Bruce Gordon, all jumped on board.

While Packer is about to come into a bit of coin via the sale of Consolidated Press Holdings to News Limited, the owner of this company, Rinehart is busy trying to get financing for her Roy Hill iron ore mine bedded down. Murdoch has been strongly supportive of the network for some time, while question marks remain about whether Gordon would be keen to tip some extra cash in.

The Catch Group, EatNow

The company behind Australia’s online deals vehicle Catch of the Day, backed by billionaire James Packer, is reportedly quickening its move into the online food market.

Founders Hezi and Gabi Leibovich have already announced they’re taking on the big supermarkets with online grocery shopping. But The Australian reports that Catch has picked up Melbourne-based food and delivery service EatNow for an undisclosed sum.

The newspaper says that the negotiations have been going on for six months and Catch has picked up the domains Takeaways.com.au and ordering site Mytable.com.au.

The newspaper says the company’s entrepreneur founder Matt Dyer will keep a minority interest.

Wrapping up

Village Roadshow has signed deal with Guangzhou R&F Properties to build a version of the Gold Coast theme park Sea World on Hainan Island.

The ASX-listed company will be the lead consultant on the $550 million project, which will be located on the island, which sits just south of mainland China’s southern tip.

While we’re talking construction, as consortium including Leighton Holdings subsidiary John Holland is designing, building and maintaining the replacement Eastern Goldfields Regional Prison in Western Australian. The new 350-bed site is a $232 million job. The consortium also includes Capella Capital, Honeywell and Pindan.

And finally, The Australian Financial Review reports that private developer Grocon not far from winning $1 billion in office projects. The headliner is the landmark tower at 480 Queens Street, Brisbane

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