BREAKFAST DEALS: PacBrands pass

Pacific Brands may have lost its first private equity suitor, although hope remains, while Telstra and NBN Co sign off at last.

Some struggling Australian companies are in the historically enviable position of being attractive to private equity in a year when many of their funds are going to have to be deployed. But private equity doesn’t throw away money for nothing. Pacific Brands apparently has a couple of takers circling the bait, but Kohlberg Kravis Roberts – the first on the scene – is reportedly not too interested in taking talks through to a sale. Better news is to be found at Telstra, which after more than two years of talks has signed a definitive agreement with NBN Co’s Mike Quigley – who could have a new boss after the next election. Elsewhere, Foxtel’s deal with Austar United Communications is probably a lock, even though the ACCC is asking the market what it thinks, Amcor is waiting for the consumer watchdog’s take on its Aperio Group purchase and billionaire James Packer has reportedly sat down with some fellow Echo Entertainment shareholders.

Pacific Brands, Kohlberg Kravis Roberts

Pacific Brands chief executive Sue Morphet might believe that, given the clothing company’s problems, it would do better in private hands, but Kohlberg Kravis Roberts mightn’t be the one to take it. The Australian Financial Review understands that KKR isn’t enthusiastic about taking discussion beyond what has been described as initial due diligence, potentially leaving PacBrands without its first suitor at the table.

It’s been reported that TPG Capital has also entered this "preliminary due diligence” phase with PacBrands so, assuming KKR does drop out, Morphet still might have a private equiteer to work with. The question of course is price. While valuations for PacBrands have fallen within the range of $600 million to $700 million, TPG was reported to have spoken to a syndicate of banks about a $580 million proposal for the company.

Assuming that the TPG figure is correct and the PacBrands market cap is hovering at $623 million, preliminary due diligence will either have to be compelling to TPG – when it apparently hasn’t been for KKR – or Morphet will have to devise a structure to get TPG over the line. In the meantime, all we can do is wait.

Telstra, NBN Co

The chief executives of Telstra and NBN Co, David Thodey and Mike Quigley, can finally put a tick next to the most important agreements of their respective gigs – Quigley still has some construction contracts to bed down – with the two parties signing a definitive agreement. Telstra expects to reap $11 billion over the course of the shutdown of its copper network and the migration of customers to the NBN.

As a result of the agreement, the government has holstered the gun that it had to Telstra’s head – the threat that it would be forced to divest its Foxtel stake – permanently. Telstra has a degree of regulatory certainty for the first time in years, now we just have to wait to see what Tony Abbott would do.

Foxtel, Austar United Communications

Speaking of Telstra’s prized pay-TV presence, the consumer watchdog has approved the $1.9 billion merger between Foxtel and Austar United Communications, but with two conditions. Firstly, the Australian Competition and Consumer Commission will consult with the market about the undertakings that Foxtel has made and tentatively set a date of March 29 for a decision. Secondly, Foxtel has conceded that it won’t be able to enter into certain exclusivity agreements over a number of channels and video-on-demand movie rights.

The question is whether the industry players will object to the conditions that Foxtel has agreed to. Do they go far enough? It doesn’t sound like a good idea for ACCC chairman Rod Sims to throw these conditions out to the market without being pretty confident that they’ll fly.

Amcor, Aperio Group

The reason why the aforementioned March 29 date from the ACCC is tentatively set could be that the ACCC is a little busy that day. According to Amcor, that’s the date by which it expects to have a ruling on its $238 million acquisition of flexible packaging company Aperio Group. The headline figure fell noticeably short of expectations for a $300 million price tag.

As for what the ACCC might do, it’s difficult to say. Amcor would be combining the top two flexible packaging firms in the country with this deal. Given that the rival bidder was thought to be son-in-law of late billionaire Richard Pratt, Raphael Geminder, the ACCC might be in the unusual position of wishing that the asset went to the Pratt family. Such an outcome would be terribly ironic given the turbulent relationship the consumer watchdog has had with one half of Australia’s packaging duopoly.

Crown, Echo Entertainment

First Gina Rinehart stopped off at the offices of Fairfax Media to ask for a board seat, now news emerges that fellow billionaire James Packer has sat down with Echo Entertainment institutional investors to talk about his own new stake. Packer met with the Perpetual Investments head of equities Matt Williams and portfolio manager Paul Skamvougeras, The Australian reports.

Apparently, his request for a board seat was not discussed at that meeting, though it was said to be on Rinehart’s agenda when she ventured to Sydney. Perpetual holds 8 per cent of Echo and 10 per cent of Crown, so you would imagine the fund manager will have something to do with anything that Packer tries.

QBE Insurance Group, HSBC

QBE Insurance Group chief executive Frank O’Halloran has managed to beat off a major player in the hunt for his latest acquisition – the first since the announcement of his pending retirement as QBE boss. QBE has picked up the general insurance businesses of HSBC in Hong Kong and Argentina for $US420 million, while France’s AXA SA has won the arms in Singapore and Mexico for $US494 million.

Earlier reports had indicated that QBE had somehow lost out, but it appears that these reports related specifically to the assets that AXA had taken. The transactions look set to be finalised by mid-2012.

Eye Corp, Ten Network

Shares in Ten Network have recovered only slightly from their February 22 plunge of 9.3 per cent that put the media company firmly on the list of potential takeover targets for private equity. No news has emerged of a party actually taking a real look at Ten so far, but in the meantime the network is thinking about offloading its outdoor advertising business Eye Corp. The Australian Financial Review understands that three parties are interested in the outdoor advertising arm, which could generate $135 million.

At the moment, the unit is still under strategic review, but it might be best for Ten to grab the cash and concentrate on rehabilitating its ratings while rival Nine Entertainment is weakened by debt problems.

Wrapping up

Mining junior Kagara has gotten an awful shock in the aftermath of its long-awaited sale of the Lizard Lounge deposit to Western Areas. Yesterday, Kagara shares plunged almost 40 per cent after the company revealed some disappointing results, which included an underlying interim half year loss of $20 million, and the resignation of chairman and founder Kim Robinson. In happier news, Iron Ore Holdings says that all the conditions have been met for the completion of the sale of its Phil’s Creek, Lamb Creek and Yandicoogina Creek satellite tenements in the Central Pilbara for $42 million to Mineral Resources.

Lend Lease is understood to have approached potential buyers of its aged care facilities to ascertain whether it should start really looking at offloading the unit that could be worth between $200 million and $300 million, The Australian Financial Review reports. The same newspaper also understands that Stella Hospitality Group is being put up for sale by its owners UBS, CVC Asia Pacific and the company’s senior management. There are no prizes for guessing who has got the advisory role for the sale; that’s right, it’s UBS.

And finally, retail giant Woolworths is trialling a joint venture that will see McCafe outlets at five of its hardware stores that have already opened up, with more expected later in the year. Bunnings is known for its killer sausage sizzles, the only thing this columnist knows what to do with at any hardware store, now there will be coffee awaiting us at Woolies’ Masters operations.

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