BREAKFAST DEALS: Murchison mayhem

Murchison Metals' new management faces a tough task of finding enough money to get the Oakajee Port and Rail project up and running and there is a good chance that it is going to end up selling its stake in the project to China Inc. Meanwhile, investors may have to be patient before anything concrete appears for Treasury Wine Estates and Asahi rules itself out of any race for Foster's, choosing to focus on juices and water. Elsewhere, former Babcock and Brown managers Phil Green and Trevor Loewensohn buy a chunk of RHG, Tully Sugar looks destined for Chinese hands and Ansell makes a small but important US buy.

Murchison Metals, Oakajee Port and Rail

The management overhaul at Murchison Metals seems to have had some of the desired effect with the miner's shares recovering from a 20 per cent dive to end yesterday's session 1.96 per cent weaker. The initial carnage was precipitated by Murchison's admission of a 24 per cent blowout in the development costs of the Oakajee Port and Rail. The costs have now ballooned to $5.9 billion and expansion costs at its Jack Hills mine have also blown out. In all, the two are costing Murchison about $10 billion so it's little wonder that the company's new managing director Greg Martin told media yesterday that the miner found itself in a lot of strife. Former AGL CEO Martin, who is also on Santos' board, replaced Trevor Matthews as the MD yesterday, while Ken Scott-Mackenzie has been brought in to replace the elusive founding chairman and director Paul Kopejtka. Both have hit the ground running, initiating a strategic review of its funding options, and investors can take heart from the fact that the penny has finally dropped for Murchison's management. Murchison owns a direct 25 per cent of OPR, with the rest owned by Mitsubishi Corporation (25 per cent) and Crossland Resources, a Murchison-Mitsubishi joint venture that is developing the $3.7 billion Jack Hills iron-ore mine. According to a pre-existing agreement between Murchison and Mitsubishi, the Japanese will make a payment to the miner for its stake in the mine, which was always expected to fill the funding commitments for OPR and Jack Hills. The cost blowouts at both projects have made that scenario less feasible and The Australian Financial Review reports that Mitsubishi is likely to make payment of up to $500 million, not the $2 billion envisaged by Murchison. That still leaves a $1.5 billion funding shortfall and the strategic review, helmed by O'Sullivan Partners and Rothschild, is designed to address this issue. The first step in that process will involve selling the stake in OPR to a willing Chinese party, like China Railway; the other is an equity raising but that's going to be tough sell. The third option is for Murchison to not only sell its 25 per cent OPR stake but also the 25 per cent indirect stake owned through Crossland, however that will spell the end of the miner's involvement in Jack Hills. While O'Sullivan Partners and Rothschild work with these options, the team of Martin and Scott-Mackenzie can now focus on signing up foundation customers for OPR. Sinosteel has already voiced its displeasure and said it's only coming back to the table if the existing tariff system is revised, while Gindalbie Metals and even Crossland's management team is yet to join the party. So it's not a pretty picture but there is hope that the new management will do whatever is needed to climb out of this hole. The one interesting thing to see is whether the likes of Sinosteel or major shareholder POSCO choose to come in and buy Murchison outright.

Treasury Wine Estates, Bright Foods

Treasury Wine Estates shareholders lapped up the speculation of a takeover tilt by Bright Foods and ran with it, sending the target's shares up as much as 11 per cent. But are they getting a little ahead of themselves? That's certainly what market observers seem to think with many pointing out that there is still nothing concrete on the table. Bright Foods delivered a very measured response to the speculation, telling the media that there were no plans to buy TWE. However, as mentioned in yesterday's column, Bright Foods has an acquisitive streak and has developed a taste for foreign food assets, as evidenced by its attempts on Yoplait and United Biscuits. The thing to watch out for now is whether the rumours of Bright Foods' interest elicits a response from US giant Constellation Brands or private equity operators who will be keen to enter the race at some point. But there is some hope for the true believers – after all, rumours of a SABMiller bid for Foster's did the rounds for months before an offer emerged; the same may hold true for Bright Foods.

Asahi, P&N Beverages

Meanwhile, Asahi Group, which has been touted as a possible suitor for Foster's, evidently still had its heart set on P&N Beverages. The Japanese beverage maker has agreed to buy P&N's mineral water and juice business for $188 million, in a deal that will see it buy all of P&N and then spin off the carbonated soft drink and cordial business to Tru Blue Beverages, a company owned by P&N founder Peter Brooks. The move comes after Asahi's $364 million bid for P&N fell foul of the Australian Competition and Consumer Commission in March and the regulator is preparing to review the new deal, which Asahi expects to be completed in September. However, it's likely that the ACCC's scrutiny will be cursory and Asahi has pitched the deal only after getting the tacit blessings of the regulator. The P&N deal wasn't the only thing on Asahi's agenda with the company also buying New Zealand-based fruit juice company Charlie's, owner of the Charlie's and Phoenix Organics fruit juice brands, for $100 million. This is money well spent for Asahi, given that folding the P&N brands, Frantelle Spring Water, Extra Juicy and Pop Tops, with Schweppes is going to give it an unenviable position in the juices, waters and premium beverages segment of the market. However, it also potentially means that Asahi has well and truly ruled itself out of joining any race for Foster's.

RHG, Trevor Loewensohn, Phil Green, Alceon Group

Rams Home Loans (now known as RHG) was the centre of a bitter battle between its founder and chairman John Kinghorn and fund managers Wilson Asset Management and Cadence Asset Management in April but interest in the business is alive and well with some interesting new shareholders. While Kinghorn's proposed share buyback at 88 cents a share failed to eventuate, he has subsequently been selling down his stake. He offloaded an 11 per cent stake in May and, interestingly, most of the 35 million shares sold seem to have been picked up by former Babcock & Brown managers Phil Green and Trevor Loewensohn. Both have emerged as major shareholders in the company after they were named in the substantial shareholder notice lodged by RHG last night. Kinghorn sold his stock between $1.24 and $1.28 and there is talk that Loewensohn's Alceon Group, which boasts Green as a consultant, may have its eyes on RHG and its loan book.

Tully Sugar, Bunge, COFCO

In the agribusiness space, China's COFCO has moved closer to gaining control of Tully Sugar after US giant Bunge decided to pull out of the race. Bunge has told the media that its $43 a share bid had failed to gain enough traction and that leaves Mackay Sugar as the only thing standing between COFCO and Tully. The Chinese suitor already holds 26 per cent of the target and its $44 a share is likely to do the trick now that Bunge has called it quits.

Wrapping up

Rubber products manufacturer Ansell Limited has made a $12.5 million acquisition in the US, buying safety disposable products maker Sandel Medical Industries. This is the first acquisition Ansell has made since the appointment of CEO Magnus Nicholin. The Sandel buy may be a small one but Ansell reckons it's an important one given that it opens up an avenue for the company to diversify its services into the surgical safety field. The acquisition is expected to be earnings per share neutral in fiscal 2012 and accretive from fiscal 2013 onwards. Meanwhile, Leighton Holdings looks set to receive around $50 million a year in project work from a new alliance with electricity network provider Ausgrid. The alliance with state-owned Ausgrid, which operates Australia's largest electricity network across Sydney, Newcastle and the Hunter Valley in New South Wales, would be worth $210 million to Leighton's Thiess division in five years. Elsewhere, listed venture capital investor CVC Private Equity is set to sell its 30.17 per cent holding in Pro-Pac Packaging to Bennamon Private Limited, at a price of 45 cents per share. Bennamon, which already owns a 18.1 per cent stake in Pro-Pac, is controlled by Raphael Geminder the son-in law of late packaging tycoon Richard Pratt. Geminder also owns the $1 billion Pact Group. The deal will take Bennamon's stake to 48.3 per cent and is subject to approval from Pro-Pac shareholders. In other news, US-focused potash explorer Transit Holdings is set to start its maiden drilling program at its flagship Paradox Basin Potash Project in Utah in the third quarter of 2011. The aspiring potash player has selected Houston-based Sabine Storage & Operations as its drilling contractor to start work on four exploratory wells. Transit has placed an exploration target of 2.5 to 3.8 billion tonnes at the project. It has also completed the first tranche of the $9.5 million placement with 6.6 million shares issued at 56 cents a piece on June 24. The placement was managed by Taylor Collison Limited. The second tranche of about 10.4 million shares is subject to a shareholder vote scheduled for July 26.