BREAKFAST DEALS: Mining funk

PricewaterhouseCoopers figures show global mining M&A is struggling, while Westfield extends its sell-off strategy.

Global mining deals are at their lowest levels since 2005. Without the Glencore-Xstrata merger and the potential for divestments from BHP Billiton and Rio Tinto, the sector would be terribly quiet. Australian equity capital markets are on the up, however. Meanwhile, Westfield Group has divested yet more half-stakes as part of its capital-light strategy, engineering group Clough is on the lookout for acquisitions after cashing in a great stake purchase and DuluxGroup has found some extra synergies from the Alesco Corporation buy.

Australia’s M&A Scoreboard

While BHP Billiton and Rio Tinto might appear in deals-related headlines in 2013, it will be in the context of a general decline of mining M&A.

The latest deals report from PricewaterhouseCoopers indicates that the number and value of global mining deals fell in 2012, by 30 per cent and 26 per cent respectively.

Transaction volume dropped to 1,803 from 2,605 in 2011, while the total value fell from $US149 billion to $US110 billion, its lowest level since 2005.

“When you consider that the Glencore-Xstrata merger accounted for $US54 billion, almost half 2012’s total value, it's clear miners were in a cautious mood,” PwC Australian energy, utilities and mining leader Jock O'Callaghan said in the report.

Given how important the mining sector is for the Australian economy, and deals industry, that’s not a terrific piece of news.

In the context of global mega-mergers, the Glencore-Xstrata deal is a bit late. BHP Billiton and Rio Tinto are both sizing up their portfolios for non-core assets to divest, which underlines how the market will play out.

Opportunities will be there for the mid-tier operators that can make the less desirable assets of the big boys work for them.

As an aside, while we’re on the big miners, The Australian understands that BHP Billiton is close to deciding on a floating LNG plant with Exxon Mobil to develop the offshore Scarborough field off Western Australia.

Meanwhile, the latest equity capital markets data from Thomson Reuters shows that the start of 2013 has been a positive one.

Equity capital market activity has reached $US5.9 billion so far this year, a 14.7 per cent increase from the first quarter of 2012. The convertible notes issues from National Australia Bank and Westpac Bank have driven the bounce.

“With a backlog of listings in the pipeline, market activity could potentially pick up the rest of the year,” said the report.

Here’s hoping for the rest of 2013.

Westfield Group, O’Conner Capital Partners

Global shopping centre giant Westfield Group showed yesterday that its strategy of selling half-stakes and forming joint ventures in its tried-and-true markets to make room for expansion into new ones is far from over.

Westfield offloaded a 49.9 per cent stake in six malls in Florida to O’Conner Capital Partners for around $US700 million ($671 million).

Last month, Westfield sold a 45 per cent stake in a portfolio of 12 US assets to Canada Pension Plan Investment Board, which fattened it cash coffers by about $US1.8 billion.

This follows joint ventures and stake sales with Hammerson Plc in London, Starwood Capital Group in the US and our very own Westfield Retail Trust.

The idea is that some of the proceeds will be redeployed to developments in Europe and South America.

We could say more about it here, but we’d just be doubling up on Business Spectator’s Stephen Bartholomeusz, who marries the story with an exclusive KGB TV interview with Federation Centre’s Steven Sewell.

Clough, Forge Group

Engineering group Clough has picked up a handy profit from the sale of its stake in Forge Group, which could very well go towards another deal.

With the help of Macquarie, Clough has jetisonned its 36 per cent stake in Forge at $6.05 a share, having bought in around $2 in share in early 2010. Nice work in a market that’s risen just 7 per cent in the same amount of time.

Clough managing director Kevin Gallagher put acquisitions and dividends front and centre yesterday after his pocketed $187 million from the sale.

“Clough intends to use the proceeds from the sale of the Forge shareholding to deliver value through strategic acquisitions and/or capital management initiatives,” said Gallagher.

Clough, majority owned by South Africa’s Murray & Roberts, has been up and about recently with first half profit almost tripling to $43 million. Its share price is up 57.8 per cent in the last 12 months.

A little over 12 months ago, Murray & Roberts announced that it was considering selling its 62 per cent stake in Clough and even appointed advisers to investigate the matter.

In its latest results the sluggish economic conditions in South Africa was evident, with Clough’s numbers the only real standout and word about a desire to sell has died down.

DuluxGroup, Alesco Corporation

Paints maker DuluxGroup has announced that its awfully frustrating but ultimately successful takeover of garage door maker Alesco Corporation might pay greater dividends than first expected.

The original estimate for the synergies that would be secured from the $210 million purchase was $5 million annually. Managing director Patrick Houlihan informed investors yesterday that the number has been bumped up to $9 million.

“Taking account of the base business performance, cost synergies, potential revenue synergies and strategic upside, we are confident that the acquisition will generate strong returns, even before any cyclical recovery,” said Houlihan, in reference to the housing market.

Some might remember Dulux declaring the Alesco offer “best and final” only to eventually engage with the board over an inflated dividend to get them over the line. The takeover got bogged down in one of the most amusing games of Australian business brinkmanship in recent memory.

Both sides fought hard for their shareholders. Dulux is now glad that it held up to the tune of an extra $4 million.

Wrapping up

Ruralco has reportedly brought in RBS Morgans for the potential acquisition of Elders Rural Services.

The Australian Financial Review carries the story, which comes on the back of Ruralco’s appointment of UBS to look at an equity raising in the order of $150 million to $200 million for an Elder purchase.

Speaking of raisings, mining services company Aethon Group is tapping the market for $31.9 million via an initial public offering.

According to The Australian, Canaccord Genuity and RBS Morgans are jointly managing and underwriting the plan.

And finally, word is growing that media mogul Rupert Murdoch, chairman and chief executive of News Corporation, parent owner of this website, has his eyes on The Los Angeles Times.

At the moment, News Corp is prevented from buying the LA Times and other newspapers because it already owns television stations in that market.

“He wants it,” said a source in a report from The New York Times.