BREAKFAST DEALS: Mollified Alesco

DuluxGroup and Alesco Corp look to be finally making progress, while Crown gets on board with hybrids.

Paints company DuluxGroup is in talks with garage door maker Alesco Corporation and, finally, the pair might actually agree on something. Goodman Fielder is releasing results today, but details are likely to be scarce about the sale of its edible oil and fats business. Also this morning, BlueScope Steel’s deal with Japan’s Nippon Steel won a big sigh of relief from the market, Solomon Lew has explained why he doesn’t want Country Road to take Witchery and Crown is the latest hybrid issue fan.

DuluxGroup, Alesco Corporation

The borderline sitcom scenario that left DuluxGroup and Alesco Corporation stuck with each other – giving Breakfast Deals much to laugh about – looks like it might finally be coming to an end.

Both companies entered a trading halt yesterday, citing the need to continue their discussions as the reason.

This is the first time the two companies have sat down with each other since the paints-producing predator declared its improved offer of $2.05 cash and up to 18 cents in franking credits final.

Reports have indicated that the topic of discussion between the two companies is the franking credits.

Alesco shares went ex-dividend yesterday and were down 8.4 per cent to $1.91 when the trading halt was called. Dulux shares were up 0.3 per cent to $3.33. Both are due to resume trading tomorrow (Wednesday), unless the talks drag on and a suspension is called.

Here’s hoping they don’t. Alesco shares were trading at $1.40 before Dulux swept in and snapped up a 20 per cent stake, ambush-style.

The only problem was Dulux paid $2 a share for that stake, as per its initial takeover offer. That was at the end of April.

Failing to get Alesco to play ball was never going to be a good option because it would have to wear the share price downside to sell out. Dulux boss Patrick Houlihan has claimed that the company would be comfortable just sitting on the Alesco register without control; they’d have no other choice.

Hence the stalemate that lasted almost three and a half months. Hopefully in the next few days Dulux and Alesco can work out a deal and end this episode.

Goodman Fielder

Goodman Fielder is due to hand down annual results today and some onlookers won’t be as interested in the bottom line, but the sale process of the edible oil and fats unit.

However they might be left disappointed. The Australian Financial Review understands that chief executive Chris Delaney won’t have much to report, the sale has been delayed until the end of the month.

Like Dulux-Alesco, this has been ticking along for quite some time. The sale was flagged as a possibility in November during Delaney’s strategic review.

However, since then the most logical buyer of the business, Cargill Australia, was thwarted by the competition regulator for the second time in two years.

Wilmar International is the next in line, having purchased a 10 per cent stake in Goodman Fielder as a precursor to the oil and fats talks. But the AFR says the Singaporeans aren’t interested anymore either.

So the story of the day for Goodman Fielder is unlikely to be about the possible sale. It’s all about the numbers.

BlueScope Steel, Nippon Steel

BlueScope Steel investors received a much-needed boost from yesterday’s $1.36 billion joint venture with Japan’s Nippon Steel.

The share price finished the session 34.6 per cent higher at 35 cents and managing director Paul O’Malley, in a nod to the company’s fatigued register, passed on his bonus for fiscal 2012.

BlueScope will end up with $US540 million after associated costs and Nippon will receive a 50 per cent stake in the North American business. The joint venture will be named NS BlueScope Coated Products.

Given that this deal covers only one of BlueScope’s four divisions, yet the headline number isn’t that far short of the steelmaker’s $887.8 million valuations before the deal was announced, the share price spike is hardly surprising. Investors are beginning to imagine what value could be unlocked if the turnaround strategy actually works.

O’Malley’s decision not to take his bonus speaks just as much about BlueScope’s desire to re-energise its register as it does about the ‘two-strike’ policy on executive remuneration. BlueScope already has a strike from last year’s vote.

Still, BlueScope was worth over $10 a share midway through 2008 and the subsequent plunge in value has onlookers questioning whether the company would survive. The prospect of an opportunistic takeover appeared long gone – the debt, the materials and the dollar were all too high.

Now with the first problem accounted for, BlueScope has more time on its hands to ride out the other two.

Check out the opinions of Australia’s business commentators on the BlueScope deal in this morning’s edition of The Distillery.

Country Road, Witchery, Solomon Lew

Retail billionaire Solomon Lew has revealed his argument against allowing Country Road to acquire fashion company Witchery.

Lew owns just under 12 per cent of Country Road through Australian Retail Investments (ARI) and has done so since 1997 when he refused to sell into a takeover by South Africa’s Woolworths.

Country Road is proposing to take over Witchery for $172 million. A capital raising of $92 million, for which Lew is being asked to put up $11 million, will pay for it.

The problem is that if Lew refuses, he could be diluted down to the point where Woolworths would be able to compulsorily acquire his stake.

A craft move by the South Africans. Then again, Australia did win more than twice the amount of gold medals than South Africa in the last Olympics.

Lew has reportedly backed away from his threat to start legal action against move itself, but will use lawyers to compel Country Road to hand over more documents.

Crown Limited

Gaming company Crown Limited is jumping on the hybrid train to support its capital expenditure for its sites in Perth and Melbourne.

James Packer’s company, which reserves its greatest ambitions for Sydney, is raising $400 million via a hybrid issue.

The unsecured, subordinated, cumulative notes will raise funds from institutional and retail investors.

The margin won’t be determined until after the bookbuild, but Crown says it’s offering an indicative 5 percentage points above the bank bill rate. Investors stand to collect 8.6 per cent.

Crown is spending $568 million to construct a new six-star hotel at its Burswood site in Perth.

Chief financial officer Ken Barton said some of the money would also be directed towards the site in Melbourne, as well as general corporate purposes.

"The offer demonstrates Crown's diligent approach to capital management, will diversify Crown's funding sources and will provide greater flexibility to refinance upcoming debt maturities,” said Barton.

Crown is hoping to spend an absolute bucket-load of cash on a site at Barangaroo, Sydney.

Its battle with Echo Entertainment, the approval of which it needs to build a site in Sydney, has hit a lull in the wake of John Story’s departure from the chairman’s seat.

Little World Beverages, Kirin Holdings

The takeover of Little World Beverages, the brains behind boutique beers Little Creatures and White Rabbit, is a step closer to becoming reality after the Federal Court of Australia approved the release of the scheme booklet to the market.

Japan’s Kirin Holdings already holds a 36 per cent stake in Little World and has put in a bid at $5.30 a share, valuing the whole company at $380 million.

An independent report from Ernst & Young put a valuation on the brewer at $4.32-$5.05, so this was already looking pretty good.

The deal has already received approval from the Australian Competition and Consumer Commission (ACCC) and the Foreign Investment Review Board (FIRB).

Little World was created just 12 years ago in a market that’s for all intents and purposes a duopoly. Yet it’s managed to secure a valuation of $380 million, while fellow independent brewer Cooper’s is ticking along nicely.

Both are examples of the problems that made the sale of Foster’s Group so troublesome. They crafted boutique beers for a marketplace that was expanding its palette as Generation Ys started guzzling.

Foster’s is now trying to turn around its staples Victoria Bitter and Carlton Draught, once unrivalled cash cows.

Wrap up

Electronics retailer JB Hi-Fi sure showed the doubters – yesterday’s Breakfast Deals was more the voice of qualified caution (spitballing) – with the release of its results yesterday.

So much so in fact that the story that emerged was not that the former darling of the ASX is a potential takeover target, but that it’s looking for acquisitions itself.

However, an offer for Dick Smith Electronics has been ruled out. Bad luck Woolworths.

What also emerged from yesterday was that Westfield is in fact in talks with AMP about disbanding their joint venture.

However, the retail property company had far fewer details to reveal than the story in The Weekend Australian. Talks must be a little less advanced than first thought.

Australian investment bank Macquarie Group has jointly managed a group of private equity firms with the State Bank of India for a $150 million investment in an arm of infrastructure firm Askoka Buildcon.

Meanwhile, Fairfax reports that it has been given no reason from Commonwealth Bank, BlackRock and Fidelity for lowering their stakes in the gold miner.

In other news, The Australian reports that NSW Sugar Milling Co-operative has been in talks with possible bidders.

And finally, Pacific Brands says it will offload surplus land in western Sydney for $27 million.

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