BREAKFAST DEALS: Metcash mettle
Metcash , ACCC, Franklins
Grocery wholesaler Metcash has obviously decided to buck the trend and take the Australian Competition and Consumer Commission (ACCC) to task after the competition watchdog decided to block its $215 million bid for the Franklins chain. Metcash's defiance was evident in its announcement that it planned to proceed with the deal despite the ACCC's opposition and will notify the regulator of its plans within five business days. It's been a while since a company has had the gumption to question the ACCC's ruling, with the last notable challenge mounted by Toll Holdings in 2006, when the regulator blocked its bid for Patrick Corporation. Then there is the example of AGL Energy taking the ACCC to court in 2003 over its bid to acquire a 35 per cent stake in Victoria's Loy Yang power station. But usually most companies just don't have the time or money to jump through all the hoops a corporate challenge such as this usually entails. However, given the fact that Franklins' South African owner Pick n Pay is struggling to find a compelling alternative on the table Metcash boss Andrew Reitzer knows that time is on his side. This isn't the first time that Metcash has been burned by the regulator's gaze but the grocery wholesaler's reaction this time around has been particularly fierce. Metcash fell foul of the ACCC in 2008 when it was singled out by the regulator in its grocery industry inquiry. The ACCC's argument at the time was that Metcash was taking undue advantage of its market position to squeeze independent retailers. That time around Metcash agreed to amend its supplier agreements but this time Reitzer has decided to defy the regulator which will now be forced to seek an injunction in federal court. One particular bone of contention has been the ACCC's claim that there were other suitors out there who provided a more palatable alternative to Metcash's offer. That is presumably in reference to the reported interest of small Queensland-based wholesaler SPAR and Canberra-based Supabarn Group, however, Pick n Pay says it has not received any credible bids so far and with the purchase agreement, now extended until June 30 next year, reportedly carrying an exclusivity contract there is a good chance that it can't engage with other parties now anyway. While some are saying that the ACCC will have to prove that there's a credible alternative to Metcash let's just remember that the watchdog's main job is to look at competition issues not the price a seller is hoping to achieve. So on that front ACCC boss Graeme Samuel does have some support. However, blocking Metcash's deal could force Pick n Pay to sell its stores on a piecemeal basis and that could play into the hands of grocery heavyweights Woolworths and Coles and that will not be a good look for the regulator. Samuel is also facing a grilling from the Senate after Queensland Nationals senator Ron Boswell won enough support for an inquiry into the ACCC's decision. There might well be more at stake here than just proving whether the competition regulator has a particular axe to grind with Metcash. This sort of political scrutiny which forces a regulatory body to justify its decision to politicians will have its critics, who claim that it could set a precedent for similar actions against the Australian Taxation Office (ATO) and the Australian Securities and Investments Commission (ASIC) and perhaps a federal court is a better venue for adjudicating these issues.
Ten Network Holdings
As Ten Network Holdings' board gets used to the idea of accommodating three billionaires in its share registry it looks like the latest player in the game, Gina Rinehart, has already made some amiable overtures to the media scions James Packer and Lachlan Murdoch. According to The Australian Financial Review, Rinehart has written to Packer spelling out her rationale behind her decision to take a 10 per cent stake in Ten for $165.6 million. This would indicate that Rinehart is betting that Packer and Murdoch will be successful in implementing the strategic changes they want made to the network and hopefully boost its share price. The paper also adds that Rinehart's decision to come into Ten may have been prompted by a speech made by James Packer earlier this month at a dinner to celebrate Sydney shock jock Alan Jones' 25 years in the industry. Rinehart was reportedly moved enough to send Packer a congratulatory email after the dinner, so Packer must have made one hell of an impression and that must have been some special speech. There's also talk that Rinehart may be offered a board seat at Ten but given her penchant to steer clear of any publicity it's unlikely she'd accept it. Meanwhile, the share sale between Packer and Murdoch has finally been made official, with Murdoch's investment company Illyria saying that the media mogul has bought half of Packer's 17.9 per cent stake for $128.2 million. The transaction gives Murdoch, who is tipped to become Ten's chairman next year, 8.9 per cent of the free-to-air broadcaster.
New Hope, Northern Energy Corporation
Speaking of other notable business personalities, Australia's busiest executive Robert Millner just might be willing to walk away from takeover target Northern Energy Corporation but not before making a final pitch to the coal miner's shareholders. Millner's New Hope Corporation has lobbed a $1.50 a share or $193 million offer for Northern Energy but he probably couldn't believe his eyes when NEC released a target statement yesterday containing an independent report which values its shares as high as $4.75. The report from Lonergan Edwards values NEC shares at almost five times what New Hope has put on the table and its little surprise that the suitor has questioned its veracity. NEC shares were trading at around 96 cents before the bid was made. New Hope has further ammunition given the fact that NEC shareholders are due to vote today on the issue of shares to management at $1.14 a share and it wasn't that long ago that it sold a 12.7 per cent stake to China's Xinyang Iron and Steel at $1.41 a share. That's well below the minimum $2.70 price put forward by Lonergan Edwards. New Hope maintains that its offer is the best one out there for NEC shareholders given the target's funding requirements but the bullish valuation presented by NEC could well be a ploy to extract a little extra cash from the suitor. Alternatively, NEC may just be hoping to close the door on New Hope once and for all, but given its funding needs that seems unlikely. By the way Lonergan Edwards does have somewhat of a reputation for bullish valuations and only recently came under fire from property giant Stockland for its report on fair value for Aevum.
RBA, Securency, Innovia Films
After copping months of bad publicity over the polymer banknote business, Securency, the Reserve Bank of Australia (RBA) has finally decided to sell its stake in a business that has faced repeated allegations of bribery and fraud. The central bank is set to pursue a joint sale with its JV partner, UK-based Innovia Films, after receiving what it described as "strong interest” from potential buyers. It looks like Innovia has been the real catalyst here for a sale after it informed the RBA that it wanted to sell its stake, which prompted the central bank to wash its hands of a business that turned out to be more trouble than it was worth. Macquarie Capital Advisers had been appointed as the adviser to both parties.
Wrapping up
Collapsed childcare operator ABC Learning's founder Eddy Groves has reportedly faced a hefty grilling over his decision regarding a 2008 transaction with a staffing company, According to The Age, Groves authorised a $70 million payment for 123 Careers on September 29, 2008 a day before his childcare empire came tumbling down. ABC's new management team pulled out of the deal less than a month after it was announced but the business had already been paid between $50 million and $60 million by that time and it looks like ABC's receivers, McGrathNicol, are now pursuing 123 Careers for a refund. 123 Careers is now in liquidation. In other news, online foreign exchange payments platform OzForex Group has welcomed investment from private equity giant Carlyle Group and venture-capital firm Accel Partners. OzForex is majority-owned by a unit of Macquarie Group and sources have told SmartCompany that Accel has tipped in between $70-110 million. Retail forex trading is hot property at the moment and Carlyle is following the footsteps of fellow private-equity firms Gain Capital, which owns Forex.com, and BRM Group and Cubit Investments which own eToro.com. Staying with private equity, the AFR reports that CHAMP Private Equity is in the final stages of selling Healthcare Australia to UK recruiter Healthcare Locums. In overseas news, Blackstone Group's takeover bid for power producer Dynegy is fizzling out despite the suitor raising its bid to $US602 million. According to media reports, Blackstone looks to have failed to win enough shareholder support to counter the opposition from Dynegy's two largest shareholders – billionaire Carl Icahn and hedge fund Seneca Capital.
Call 1300 880 160
Start a chat
Schedule a call
