BREAKFAST DEALS: NZX power start

The New Zealand Exchange gets an IPO kick from Mighty River Power, while the ADM-Graincorp timetable is largely up to China.

Mighty River Power has underlined how quiet the Australian IPO market is, with Genworth Australia looking on and a private equity firm hopefully preparing to break the deadlock. GrainCorp has batted away a number of concerns about its Archer Daniels Midland offer without much trouble, although those regulatory whispers will continue. Elsewhere, Discovery Metals appears to have indicated that its capital raising is taking a back seat, while Macquarie has found some support amongst Gunns' managed investment scheme investors.

IPO waiting game, Mighty River Power, Genworth Financial

Australian investment bankers hoping for the local IPO market to get off its chronically fatigued backside were looking longingly across the Tasman yesterday as some of the first ripples of the Mighty River Power float hit the New Zealand Exchange.

The benchmark NZX 50 index dipped 0.6 per cent, largely because investors were selling off positions to participate in the government sale.

If only Australia's market could get such a headliner up and running. Mighty River Power might be going for a secondary listing on the Australian Securities Exchange, but it isn't like Phar Lap or Russell Crowe. We can't claim this one as our own.

The advantage that New Zealand has over the Australian market in this specific instance is that the government is the seller. These floats can to some extent force their way through a poor IPO market. Government privatisations are more often than not ripe for cost cuts and are major players in their markets – sometimes they're monopolies.

Private companies might desperately want to launch their business onto the ASX at the moment, but without a government privatisation to test the market's appetite, no individual company has been willing to be the guinea pig.

That very much appears to be the case with America's Genworth Financial, which did have plans last year to float 40 per cent of its Australian operations for about $800 million.

Those plans were delayed while the company dealt with the financial aftermath of the Queensland floods.

According to The Australian Financial Review, Genworth chief executive Thomas McInerney has told analysts that the state of the Australian IPO market is a major factor in its timetable for a float. Genworth isn't in a hurry.

“We’d like to see over the next few months a little bit more evidence of a good IPO market,” McInerney said.

All eyes are on Quadrant Private Equity's Virtus Health, which is hoping for a $450 million IPO later this month, to help break the drought.

GrainCorp, Archer Daniels Midland

US agribusiness giant Archer Daniels Midland is forging ahead with its $3 billion takeover offer for Australia's GrainCorp after completing a short due diligence that uncovered nothing untoward.

GrainCorp shareholders are in store for $12.20 a share and a $1 dividend. The target's board has thrown its support behind the offer, providing that a superior offer doesn't emerge and the independent expert gives the deal a 'fair and reasonable' stamp.

With ADM standing on a 19.8 per cent stake in GrainCorp, a rival proposal is very unlikely and the target is likely to have done as much as it could to generate a rival offer. ADM is the one for GrainCorp.

The greatest threats to the deal are regulatory hurdles, which are also required for GrainCorp's blessing. ADM chief executive Patricia Woertz made the first step towards winning over the Australian Competition and Consumer Commission by reassuring Australian growers that GrainCorp's terminals and storage facilities will remain open for access.

But the Ministry of Commerce of the Government of the People’s Republic of China is the body that ADM will fear most. It took almost 11 months to approve the Marubeni purchase of Gavilon and nine months to do the same for Glencore International's purchase of Viterra. If the regulator takes that long for GrainCorp, the two companies will have to amend some of the conditions for the bid relating to the timetable.

ADM pretty casually dismissed concerns that it would struggle to pay for GrainCorp. It has $US8 billion in available liquidity. The structure of the funding will be decided closer to the completion date. 

Similarly, ADM isn't getting ahead of itself in regards to speculation that it could sell off some GrainCorp assets, such as the malt business, emphasising the quality of the GrainCorp business. 

And finally, Woertz has told her own shareholders, which are dealing with the unavoidable impact on earnings that the US drought has reaped, that the GrainCorp deal could generate up to $70 million of synergies in the first two years.

Discovery Metals, Cathay Fortune

African-focused copper miner Discovery Metals might have abandoned its capital raising push if yesterday's statement to the ASX was anything to go by.

Discovery is due to emerge this morning from a trading suspension that began on April 26 after plans to raise capital, possibly through an "accelerated non-renounce able entitlement offer", we're rudely interrupted by former suitor and largest shareholder Cathay Fortune, which proposed 10 days of due diligence.

While Discovery hasn't made any outward signs of entertaining Cathay's unsolicited offer to look at its books, the latest announcement from the company did have a glaring omission: "Discussions have continued with a number of potential investors and with the company's banking syndicate," said Discovery. Where is the reference to that entitlement offer?

"The company will continue to inform the market of material developments as matters progress."

That was pretty much it.

In a separate release, Discovery boasted that a Dispute Adjudication Board has handed down its decision on the rift between the copper miner and mining services company Sedgman. It concluded that Sedgman owed Discovery an argued amount of just under $5 million.

Great! The thing is, Sedgman countered with a release of its own that claims an amount totalling $6.8 million is owed by Discovery to Sedgman. This sum, according to Sedgman, has not been disputed.

Either way, Discovery chose not to mention that bit.

Wrapping up

Investment bank Macquarie Group has reportedly won "overwhelming support" from an umbrella body that speaks for investors who pumped $500 million into nine managed investment schemes of the collapsed Gunns Limited to replace the liquidator as manager.

The Australian reports that a Gunns Growers Group spokesperson has confirmed the organisation's support for Macquarie's proposal, which is opposed by liquidator PPB Advisory.

In other news, recently installed APN News & Media chairman Peter Cosgrove has told the same newspaper that a number of joint ventures could be divested as he looks to simplify the company's footprint.

Meanwhile at a conference in Sydney, AGL Energy chief executive Michael Fraser played down suggestions that the company would be seeking to acquire one of the New South Wales government's electricity generators, if and when they come up for sale. That's good news for the players who do see some value – but not for the indebted state government.

At that same conference, APA Group chief executive Mick McCormack emphasised his company's interest in purchasing gas pipelines that could be sold by the big gas-export joint ventures.

And finally, Royal Dutch Shell has signalled that it's in no hurry to divest its 23 per cent stake in Woodside Petroleum, according to The Australian Financial Review.

This column believes that moves by Woodside boss Peter Coleman to slash capex and increase dividends will hasten Shell's exit. Quite when it will be however remains a mystery.

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