BREAKFAST DEALS: Nine's theatrics

Worthy of a prime-time drama, Nine's ownership hinges on a battle between hedge funds and private equity, while Ten Network is touted as a potential target.

US hedge funds have thrown up a counter proposal for Nine Entertainment that would wipe out private equity owners, as the television network books a bumper August on the back of the Olympics. Ten Network didn’t do so well, underlining the challenges for any dealmakers eyeing up the network. Elsewhere, iron ore’s sudden recovery signs come as a welcome relief to Fortescue Metals Group, while Tower Australia could be set to reveal some interest that its receive in its assets.

Nine Entertainment, CVC Asia Pacific, Goldman Sachs, Apollo Global Management, Oaktree Capital

Nine Entertainment might have destroyed the competition in the latest ratings figures, but owner CVC Asia Pacific will face an uphill battle not to be totally wiped out by its hedge fund lenders.

Nine got 41.8 per cent of the audience in August thanks largely to its exclusive Olympic coverage, despite the consistent criticism that the coverage was too swimming centric. That’s up from about 21 per cent in the same month last year.

This will inform the case being laid out by CVC and investment bank Goldman Sachs, provider of Nine’s $1 billion in mezzanine debt, that they should maintain a share of the network. If Nine is worth enough, the hedge funds that want control, Apollo Global Management and Oaktree Capital, would assume ownership of a smaller stake.

But, according to The Australian Financial Review, the two American hedge funds have put forward their own proposal that would completely erase CVC and Goldman Sachs from the ledger.

Key to their case is that they dispute the $2.5 billion valuation placed on Nine that’s being weighed against the $2.8 billion in senior debt, of which the pair speak for about $1 billion. Key to their strategy is a letter to fellow lenders, urging them all to team up to force CVC and Goldman Sachs out.

Ominously, The Australian reports that insolvency experts KordaMentha have been called in by the hedge funds to advise on the encounter. It’s a clear sign that if negotiations go bad, Apollo and Oaktree are prepared to carve Nine up piece by piece.

Ten Network, Lachlan Murdoch, DMG Radio

While we’re on media, yesterday’s TV ratings numbers also underlined the struggles at Ten Network and the unlikelihood that a deal will be done with chairman Lachlan Murdoch in the short term.

Ten has occasionally been touted as a potential takeover target for private equity, but attention has recently focussed on Murdoch after his private company, Illyria, secured the remaining half of DMG Radio.

The theory goes that a combination of TV and radio assets would suit both companies in the long run amid the convergence of media platforms.

The problem, as outlined yesterday, is that Ten is in a woeful state. The network secured just 21 per cent of the national audience, which was less than Foxtel.

Fortescue Metals Group

Iron ore miner Fortescue Metals Group jumped five per cent yesterday as the market responded to another rise iron ore prices amid hopes of economic stimulus in China.

There looks to be a bit of short-covering in Fortescue stock, which has come under increasing pressure in recent weeks for a capital raising as slumping iron ore prices hamper its ability to service its debt.

Standard & Poor’s still put the iron ore miner on its watchlist, but the rally will be a relief to investors that have watched the stock tumble 41 per cent in the last six months.

But iron ore prices are back up around $US100 a tonne, much to the relief of Fortescue founder Andrew ‘Twiggy’ Forrest. Analysts have consistently pointed to a rebound from the $US80s because Chinese producers become unprofitable around $US110-$US120 a tonne. But the rebound has caught many onlookers by surprise, including this columnist.

Just a little further and the commodity could be back up around that $US110-market that Fortescue needs to continue servicing its debt.

Much of the focus on Fortescue has centred on a capital raising, rail asset sale, or a link-up with Gina Rinehart’s Roy Hill deposit. You can put the capital raising idea to bed for the moment, assuming that iron ore prices continue to edge towards Fortescue’s comfort zone.

Additionally, Business Spectator reader John Parkes wrote in to The Conversation yesterday suggesting that a deal with China’s mills could be something else to look out for if Fortescue becomes more conscious of costs – a great point.

Commonwealth Bank of Australia, PERLS VI

Commonwealth Bank of Australia has priced its sought-after hybrid bond issue at a margin of 380 basis points above the interbank swap rate.

Further, the offer was doubled to $1.5 billion from an indicative $750 million, which was initially delayed by some questions from the Australian Prudential Regulation Authority.

Given 3-month bank bill rates are currently around 3.56 per cent, the notes will pay something in the order of 7.36 per cent. With those sort of returns it’s understandable why the market has jumped on them.

The nearly $1.5 billion in PERLS IV will be due sometime in October and all holders have the option to reinvest them into PERLS VI.

Those wanting to exit can collect their cash by selling them on the ASX on October 24.

It’ll be interesting to see whether the other big four banks follow the move, which adheres to the new Bank of International Settlements Basel III rules.

Queensland government bonds, SAFE

Speaking of the search for yield, the Queensland government has reportedly been in talks with the foreign-exchange division of China’s central bank about the purchase of state government bonds.

According to The Australian, Queensland Treasurer Tim Nicholls sat down with officials from the State Administration of Foreign Exchange (SAFE) in July.

The newspaper also says that SAFE has met with officials from NSW and Victoria.

This just goes to show the increasing reputation of Australia as a safe haven economy and undermines the speculation recently that the Australian dollar will fall.

Qantas Airways, Emirates

Qantas Airways chief executive Alan Joyce and his senior executives are in Singapore trying to make sure that locals are under the impression that the carrier isn’t significantly pivoting away from Asia.

The deal with Emirates will see two daily Qantas flights to London touch down in Dubai rather than Singapore, with the other daily flight to Frankfurt axed.

According to The Australian, Qantas executives will this week outline a reorganisation of flights to Singapore, which is not a small deal. Singapore remains the crucial hub for the carrier’s Asian flights, as well its Jetstar Asia banner.

This is perhaps an under appreciated aspect of the Emirates deal.

Qantas’s failed attempted to establish a premium airline in Asia via either Singapore or Malaysia fell through last year.

This unequivocally showed that Qantas believes the growth in the travel market will be skewed towards Asia as Australians become more engaged in the region as business people and travellers, and visa-versa.

The flying kangaroo is definitely keen to embed itself more deeply in Asia when certain regulatory hurdles are cleared-up. The fact is however that Qantas’s ability to deal with its problems in Asia was always hindered by its loss-making European leg.

If Qantas can get its deal with Emirates past the Australian Competition and Consumer Commission (ACCC) it’ll be no longer sending planes to London at a loss and will have greater flexibility to compete for the more lucrative growth markets in Asia.

Wrap up

New Zealand’s Tower Australia is set to announce the results of a strategic review as soon as today, reports The Australian Financial Review, that is expected to reveal a range of approaches for many of the company’s business units.

Staying across the Tasman, Chinese whitegoods giant Haier says it might divest Fisher & Paykal’s finance unit if it secures control of the company with its $NZ869 million ($680 million) offer.

Meanwhile, one of Alesco Corporation’s major shareholders is threatening to vote against the upcoming remuneration report because of the company’s handling of the $210 million DuluxGroup takeover offer.

Speaking to The Australian, Wilson Asset Management managing director Geoff Wilson, who speaks for about 6 per cent of the Alesco register said, "At the moment, their shareholders are at risk of missing out on a 27 cent dividend while the Alesco board continues to recommend against the Dulux bid.”

Elsewhere, Super Retail Group has picked up a 50 per cent stake in online and sports venue company VBM Retail for an undisclosed amount.

The owner of Rebel Sport and Super Amart said the company will utilise its existing supply chain capabilities to take advantage of VBM’s online operations. It’s a sound more for a mature retailer.

In resources, The Australian Financial Review reports that Sundance Resources is "working around the clock and around the globe” to get its takeover agreement with China Sichuan Hanlong Mining over the line. Executives are meeting with officials in the Republic of Congo, Paris, Beijing and Perth to bed down the 45 cent proposal.

And finally, it appears that the Queensland state government has given the faintest of hints about the pending sale of its $2.8 billion stake in QR National.

Treasury officials have confirmed to the AFR that the sale of the 34 per cent stake has been included in the projections for the state’s debt numbers.