BREAKFAST DEALS: Mirvac ruckus

Mirvac looks set to duke it out with GPT Group over Australand, while GrainCorp finally addresses the latest offer from ADM.

Mirvac Group is thinking about going up against GPT Group over Australand. If there were any questions about whether the target should be holding out for a better offer from Mirvac, this should answer them. GrainCorp chairman Don Taylor has made his first public comments about Archer Daniels Midland as the company prepared to its AGM. Meanwhile, Fortescue Metals Group shareholders have reacted positively to its infrastructure plans and Billabong International is in a trading halt, again.

Mirvac Group, Australand, GPT Group

Mirvac Group chief executive Susan Lloyd-Hurwitz is reportedly thinking about taking on GPT Group managing director Michael Cameron in the race for Australand Property Group.

The Australian Financial Review reports that Mirvac is pondering a $7 billion merger with Australand, though it is believed to be one of "several options” that Lloyd-Hurwitz is considering with advisers from Citigroup.

It should be emphasised that a proposal has not been put to Australand; a statement from both companies to the ASX this morning indicating as much would be much appreciated by investors.

However, the newspaper understands that Mirvac has been thinking about this for quite a while. The GPT move has drawn out this story from Mirvac.

A straight merger would crucially differ from the proposal GPT is pursuing, that Australand has rejected, where it would acquire the target’s commercial, industrial and investment property businesses. The residential arm would be left alone and Australand would be irreconcilable to its current incarnation.

From the moment that GPT put its hand up, all eyes have been on Australand’s Singaporean majority shareholder Capitaland, which is backed by Temasek.

The AFR says some market sources believe a merger proposal could be more appealing to the Singaporeans because the residential assets would be simply rolled into the GPT vehicle.

Whatever the case, before the opening of the market this morning, Australand shares were up 40.4 per cent for 2012. It looks like next year is going to be another good one for them.

GrainCorp, Archer Daniels Midland

GrainCorp chairman Don Taylor got out on the front foot yesterday afternoon following criticism from by influential investor Ashok Jacob over his board’s handling of the Archer Daniels Midland takeover proposals.

Its Taylor’s first public comments on the now sweetened, but rejected, $2.8 billion offer from the US giant. The comments came in a letter to shareholders addressed three days before the company’s annual general meeting, where he is up for re-election.

"The GrainCorp Board believes ADM’s revised indicative, non-binding and conditional proposal still materially undervalues the company and has advised ADM and the market accordingly,” said Taylor.

"GrainCorp remains confident in its outlook and strategy to continue to deliver shareholder value.”

As you can see, there’s nothing new in here. The letter certainly doesn’t go down the road of comparing GrainCorp’s offer on an earnings basis to other industry transactions, because that lends weight to a price at which Taylor might be willing to engage in.

But the comments do come after Jacob, who heads up investment the Packer-backed Ellerston Capital, delivered a parting criticism to the board of GrainCorp as his firm sold out amid the buying from ADM, which now holds 19.9 per cent, and hedge funds, which now hold an estimated 15 per cent.

"I understand tactically them not engaging first time around but it is absolutely incomprehensible they have not engaged after the bump,” Jacob was quoted as saying earlier this week.

Fortescue Metals Group, The Pilbara Infrastructure

With yesterday’s 4 per cent rally on plans for an infrastructure stake sale, Andrew Forrest’s Fortescue Metals Group shares are up 49.5 per cent since September 14. What a staggering turnaround in the company’s situation.

Fortescue announced that Lazard and Macquarie have been appointed as advisers on its plan to sell a minority interest in its port and rail assets, housed under the wholly-owned The Pilbara Infrastructure.

It’s not hard to imagine some of the players that chief executive Neville Power said were providing the "strong interest” for TPI. This column is thinking about the mega Canadian pension funds, Ontario Teachers Pension Fund and Canada Pension Plan Investment Board as likely contenders, as well as big Chinese investors, where Fortescue’s product ends up going.

Some have valued TPI at $US10 billion, which would deliver Fortescue an almost $US5 billion in the event that it sells the largest possible minority stake of 49 per cent.

There are two problems with that. Firstly, some analysts just gawk at the $US10 billion figure. Secondly, it’s being widely reported that Fortescue isn’t keen on selling TPI to rival iron ore producers, which counts out Gina Rinehart’s Hancock Prospecting or a coalition of smaller iron ore players.

Less bidders means a lower price, but this also speaks to a balance that Fortescue will have to strike with the ultimate buyer.

If Fortescue demands that TPI maintains its apparently high bars for third party access, maximising its own access, then the bidder will be either demanding higher tariffs from the iron ore company or a lower acquisition price.

Many market analysts and commentators, including Business Spectator’s Stephen Bartholomeusz, immediately asked whether Fortescue is selling out crucial infrastructure assets in order to settle an admittedly large debt burden (expected to peak at $US12 billion) that’s actually on pretty cheap terms.

That’s a difficult question for Fortescue and onlookers. Perhaps the only detail that hasn’t been offered in the commentary since Fortescue’s announcement is that despite that almost 50 per cent rally in its share price, the company’s market cap is hovering at less than $14 billion, which is uncomfortably close to its anticipated debt burden.

Iron ore prices might be at five month highs and Fortescue’s new $US4.5 billion debt package allows for much greater flexibility, another slip in commodity prices could quite easily increase the nerves.

If that were to happen and Forrest were to pull the TPI sale trigger then, Fortescue would be more of a forced seller and the prices would be even lower.

Meanwhile, Fortescue’s adviser Lazard has just announced the appointment of former chairman of KPMG’s Western Australian office Steve Scudamore as special adviser to its Australian corporate activity business in Perth.

Lazard Australia chief executive John Wylie, a former investor in this website, said Scudamore would provider the adviser with "significant additional insights and relationships” in the Western Australian market.

Scudamore is also a board member of Aquila Resources and MDA Insurance.

Billabong International, Paul Naude

Billabong International shares were allowed to trade for too long yesterday after news broke that director Paul Naude looks to have cobbled together a $527 million bid. Crucially, it reveals the market doesn’t give the proposal much of a chance.

Naude, who has been on leave from director duties since mid-November for this very task, looks to have secured the support of New York private equity group Sycamore Partners, with Bank of America-Merrill Lynch providing the leverage.

Billabong shares were allowed to trade for over an hour before the clothing company placed them in a trading halt pending an announcement on "a possible change of control proposal”.

The surfwear company’s stock rallied 4 per cent to 98 cents, which is 33 per cent above the levels it was trading at before Naude’s intentions became known. The stock is still trading at an 11 per cent discount to Naude’s apparent offer price of $1.10, which says a lot about the chances the market gives this proposal.

On a share price basis it looks compelling. Naude is offering a 48 per cent premium to the price Billabong was trading at when he went fishing for backers.

But analysts are pointing out that the deal is pretty unconvincing on an earnings basis compared to other recent retail transactions.

The problem is that most comparable transactions are between industry buyers. Billabong has a long turnaround story ahead of it and has only ever attracted the attention of private equity.

It all comes down to whether the register has been suitably assured by relatively new boss Launa Inman that her brand consolidation, store footprint reduction and fresh distribution strategy will deliver more than $1.10 a share within the foreseeable future.

Wrapping up

Pallet maker Brambles has picked up CEVA Logistics' intermediate bulk shipping container arm Pallecon for €135 million ($166.78 million). The deal, which is still subject to a few conditions, will be paid for by existing facilities.

Elsewhere, Elders subsidiary APT Projects is selling 30,000 hectares of pulpwood timber plantations in the Ord River area. Elders said it’s not selling any of its own assets, but it will pick up a fee for the service.

Moving to resources, Canada’s Cameco has reportedly won the approval of the Australian Foreign Investment Review Board to buy BHP Billiton’s Yeelirrie uranium site, leaving Western Australian Premier Colin Barnett as the only person who can yet prevent the deal.

The Australian Financial Review reports that sources indicate that FIRB has given the purchase the green light, which sets up an interesting dynamic between Australia and Canada, with the former not so welcoming of uranium foreign investment.

Meanwhile, the administrators of Kagara Mining have secured a $40 million deal with China’s Snow Peak Mining covering a suite of assets in Queensland.

In media, Fairfax Media chief executive Greg Hywood has offered a defence of the company’s decision to sell its remaining stake in Trade Me in an interview with The Australian.

The report indicates that Fairfax is understood to be close to picking up a company called nexus, which is a technology investment company from tech entrepreneur Daniel Petre and ex e-Bay Australia boss Alison Deans.

Additionally, some of the minority debt holders of Nine Entertainment have objected to the restructure deal preferred by its major hedge fund lenders. This serves as a reminder that yesterday’s Breakfast Deals column that indicated that Nine had "emerged” from its debt-crisis was woefully premature.

And finally, ANZ Banking Group offloaded its payments business Eftpos New Zealand to Verifone Systems, which is a global electronics payments solutions company.

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