BREAKFAST DEALS: PacBrands punt

PacBrands rises on rumours of a new bidder, while Leighton is hoping for a swift end to controversy.

Betting on private equity bids is a risky business. Higher bids are hard to come by thanks to internal parameters and their particular brand of opportunism is quite frequently met with a somewhat insulted target board – just think Spotless Group. While things have gone quiet at Pacific Brands, the company’s share price has been creeping upwards lately as investors contemplate the likelihood of a transaction with Kohlberg Kravis Roberts in the ring and TPG Capital sizing up some trunks. Elsewhere, Leighton Holdings is sitting on a deal tainted by bribery allegation in a region that is, if nothing else, sensitive at the moment. Meanwhile, Fortescue’s newest shareholder still remains a mystery, it’s African Iron’s big day and AGL Energy wants a Japanese slice of a Victorian power station at an absolute steal.

Pacific Brands, Kohlberg Kravis Roberts, TPG Capital

Pacific Brands shares have been inching steadily higher since the emergence of another possible bidder for the struggling clothes company. Twelves days ago, news emerged that TPG Capital was talking to a syndicate of banks about a potential $580 million run at PacBrands. That provided an interesting backdrop for the talks with rival private equity firm Kohlberg Kravis Roberts and pushed the share price up to 67 cents from 63.5 cents, giving the company a market cap of about $623 million.

Since KKR hadn’t actually engaged PacBrands, chief executive Sue Morphet had little need to address the market so things have gone pretty quiet. We haven’t heard any word from the company about TPG since the original announcement on January 10. Yet PacBrand shares are continuing to climb, having risen over five per cent since the KKR news, while the market has been almost dead flat over the same period. This gives the company a value of $656 million, which is almost exactly bang in the middle of the $600 million to $700 million price tags that were being thrown around when the TPG news first emerged.

Leighton Holdings, South Oil Co

Leighton Holdings revealed yesterday that the Australia Federal Police are investigating – at its prompting, it must be said – bribery allegations surrounding the company’s contracts to expand the offshore loading facilities for Iraq’s crude oil exports. The investigations focus on payments made by subsidiary, Leighton Offshore Pte. Leighton secured a combined $600 million in contracts for Iraq’s South Oil Co in October.

There’s no suggestion that any of Leighton’s other contracts in the region have been brought into question – though Fairfax is reporting that Leighton has had some suspicions about some of its divisions for some time – but it will be hoping that its employees will be either exonerated or dealt with quickly.

Fortescue Metals Group, Iron Ore Holdings

Fortescue Metals Group isn’t giving anything away amid claims that Canada’s largest diversified miner has parked on the iron ore miner’s register. The Australian Financial Review points to Teck Resources as the party behind the 2.9 per cent stake in Fortescue that’s been building up through the Royal Bank of Scotland, thanks to company statements about investments in unnamed companies of similar amounts to the Fortescue investment. Shares in the iron ore miner added five per cent on that insight.


The news comes as Fortescue signs a deal with Iron Ore Holdings over the Iron Valley and Weeli Wolli tenements in the central Pilbara. Under the agreement, Fortescue forks out $25 million and in return it gets an exclusive 13-month option to mine the sites. If Fortescue goes for it, the iron ore miner will win a development licence while Iron Ore Holdings will remain owner. Fortescue will be up for the costs of developing and operating the mine as well.

African Iron, Exxaro

Today’s the big day for African Iron shareholders to cash in their chips. Tony Sage’s Cape Lambert made good on its promise to accept the 51 cents a share takeover offer if a superior offer could not be found. The target’s directors have accepted Exxaro’s offer for their unlisted options and urged shareholders to go with the current offer, which will rise to 57 cents if acceptances reach 75 per cent.

But a bit needs to happen between now and then. Exxaro’s stake isn’t at 50 per cent yet and if it isn’t by the end of today, that 57 cents will be a complete fantasy. If acceptances reach the halfway mark, by 5pm Perth time to be precise, shareholders will have another 14 days to make the 57 cent offer a reality.

AGL Energy, Tepco

AGL Energy is hoping to capitalise on the plight of fellow investor in Victoria’s Loy Yang A power station, Tokyo Electric Power (Tepco). You might well remember, Tepco runs the Fukushima nuclear power plant and there are no prizes for guessing why it might be reviewing its investment footprint. AGL already owns 32.5 per cent and is boldly seeking Tepco’s stake of equal measure, reportedly for quite a bit less than it paid for its stake.

The Australian Financial Review reports that AGL has offered just $145 million, which is less than half what the Australian energy retailer paid for its own stake. But AGL will have to convince not just Tepco, but also the power station's fellow shareholders – Ratch-Aust Corp (Transfield Services Infrastructure Fund), MTTA, AustralianSuper and Statewide Superannuation – and the Federal Court. At the moment, AGL’s stake is limited to 35 per cent, so there are many discussions to take place.

Murchison Metals, Oakajee Port & Rail

Murchison Metals shareholders have officially put the uncertainty of the Oakajee Port & Rail project behind them after voting in favour of a $325 million offer from joint venture partner, Japan’s Mitsubishi, for its 50 per cent stake in the multi-billion dollar project. Mitsubishi has stated that it will look for someone else to take up Murchison’s old stake, probably from China, Japan or South Korea.

The question now becomes, what’s next for Murchison? After settling some debts Murchison will have $217 million and many shareholders are urging for that money to be returned. Murchison management have stated that they’re aware of the interest, but are also keeping their minds open to investing in mining juniors instead.

Brambles, Recall

Australian pallet maker Brambles has apparently got three fish on the hook for its US document management business Recall. Brambles is due to reveal its interim results to the market later this week but as yet the company is still sorting through the numbers for Recall. The Australian Financial Review reports that Onex, Apollo Global Management and Thomas H Lee Partners have all confirmed their prices to UBS and Merrill Lynch, the advisers overseeing the process. That means the Carlyle Group must have dropped out of the race for the business, which Brambles hopes will fetch $2 billion.

Wrap up

Quadrant Private Equity has tapped Morgan Stanley to lead the sale of its in-vitro fertilisation business, Virtus Health Group, The Australian Financial Review reports. If hopes are met, the business will generate $500 million.

Coal-seam gas company Westside Corporation is being tapped for a non-binding takeover that values the target at $165 million. So far the offer is indicative, highly conditional and the party unnamed. Westside has retained Moelis & Company as its financial adviser and Allens Arthur Robinson as legal adviser for the move.

Junior mineral explorer Minemakers has launched a $24.4 million scrip offer for its joint venture partner on the Sandpiper marine project off the coast of Namibia, UCL Resources. Although the target’s share price surged due to the hefty premium implied by the share swap deal, UCL has stated that it will reject the offer. Meanwhile, infrastructure services company Cardno has picked up a $22 million contract with mining giant Rio Tinto for upgrades to its iron ore mines in Western Australia.

And finally, mineral sands hopeful Base Resources is close to sealing the final offtake agreements to lock in funding for its Kwale project in Kenya, The Australian reports.

Related Articles