BREAKFAST DEALS: Pacific waves

Rio Tinto's hopes for a Pacific listing and Inghams' own potential float could signal a turning tide for Australian IPO.

Speculation that the Australian IPO window may finally be close to opening is gaining momentum with news from mining giant Rio Tinto and chicken major Inghams Enterprises. The PMI Gold-Keegan Resources merger is reportedly doomed to meet unimpressed shareholders. Meanwhile, WHK Group and SFG Australia are reportedly making progress with merger discussions, Wilson HTM has booked some better than expected numbers just in time and Commonwealth Bank gave us two deals takeaways.

Rio Tinto, Inghams Enterprises and the IPO waiting game

Mining giant Rio Tinto and chicken company Inghams Enterprises have both made moves that add serious weight to hopes for a long-awaited Australian IPO comeback.

New Rio boss Sam Walsh has named an all-star advisory board for Pacific Aluminium, which Rio quarantined in October 2011 and has so far been unable to jettison.

Meanwhile, Inghams Enterprises, once determined to have a trade sale of its prized chicken business done by Christmas, is now reportedly having its investment bank Investec conduct a dual-track process where it will also investigate a float. Joint lead managers will be appointed shortly.

We’ll fill you in on the details briefly, but first let’s consider what these developments mean more broadly.

The first is that any attempts by Rio and Inghams to find a buyer for their respective businesses have generated mixed-to-disappointing interest.

The second is that the increasing optimism about IPOs in Australia has got the pair thinking that a float might be a better way of securing top dollar.

It’s probably a bit of both.

Rio formed Pacific Aluminium a full 16 months ago; if there were a buyer out there they would have found them by now.

Inghams wanted a deal done almost two months ago, which is a sure sign that the offers haven’t been up to their expectations. Indeed while valuations have centred on $1.4 billion, it’s been reported the Ingham family, headed by Bob Ingham, was hoping for $1.6 billion.

Meanwhile, the market has just surged through 5000 points, closing above the psychologically important, but practically irrelevant, barrier for the first time in since April 2010. Floats are suddenly becoming a more realistic proposition.

The equity market is simply at levels that are as good as we’ve seen in the post-GFC era and from an IPO perspective, the disappointment of the Myer float is now more than three years in the rear-view mirror. Incidentally, Myer is up 47 per cent in the last six months.

Walsh’s advisory board features the highly respected Peter Mansell in the chair, with BHP Billiton China boss Clinton Dines, Gindalbie Metals chief Timothy Netscher, former Aurizon chief financial officer Deborah O’Toole and Senex board member Ralph Craven.

Pacific Aluminium boss Sandeep Biswas and Rio business support boss Bret Clayton are also on the advisory board.

While it’s thought that no decision on whether an IPO will be sought, the sheer firepower on the board means it’s a much more likely option than it was before.

As one final thought, this speculation around IPOs could only have come about with the latest sharemarket surge.

One of the reasons Tom Albanese stepped aside for Walsh last month was not just the latest aluminium writedown (and the Riversdale Mining writedown), but also the length of time it has taken Rio to address its Alcan mistake.

Floating Pacific Aluminium would have been unthinkable six months ago because equity markets simply wouldn’t support it.

So here’s the question. If central bank money printing, largely responsible for the sharemarket buoyancy had had its impact much earlier, giving Rio the confidence to pursue a Pacific Aluminium IPO sooner, might Albanese still have his job?

Probably not, but it’s informative to contemplate.

PMI Gold, Keegan Resources

Gryphon Mining managing director Steve Parsons might believe that a PMI Gold-Keegan Resources merger could be a template for the precious metals industry, but it’s unlikely to succeed.

The Australian Financial Review says that "well-placed sources” indicate that Macquarie Group and Taurus Funds Management speak for 20 per cent of the register, along with Acorn Capital with 5 per cent and a number of other shareholders, are unlikely to vote for the deal.

The $C700 million ($678 million) merger of equals proposal, which seeks to combine the promising undeveloped Ghana asset of the Australian PMI with the $US200 million cash position of the Canadian Keegan, is headed for a vote next Wednesday.

The Australian Financial Review says that PMI shareholders believe they are bringing more to the table than Keegan, hence a merger of equals is inappropriate.

WHK Group, SFG Australia, Wilson HTM

WHK Group and SFG Australia have reportedly advanced their discussions for a merger to form a $720 million-plus financial advisory and wealth management company.

The Australian reports that exact terms have not been agreed upon, but talks have come along since they first began in October.

Greenhill Caliburn is advising WHK and Investec Bank and Yorkway Capital Partners are helping out SFG.

Meanwhile, another company benefiting from the stockmarket strength from a deals perspective is stockbroker and financial services group Wilson HTM, which is trying to fend off an opportunistic approach from Mariner Corporation.

Wilson HTM announced a half-year loss of $2.4 million, which was right at the good end of expectations. The share price responded with a 4 per cent rally.

Trading volumes are picking up, which can only benefit the takeover target that is considering legal action against its suitor.

Coca-Cola, Casella

Coca-Cola Amatil managing director Terry Davis has again spoken with enthusiasm about his desire to return the bottling company to the business of brewing.

In an interview with The Australian, Davis talks about the prospect of taking on giants Foster’s (now owned by SABMiller) and Lion Nathan (now owned by Kirin Holdings) in the beer market with its distribution capabilities and 1000 sales staff.

"It's so logical for CCA to be in that market as a full-service beverage company,” Davis says.

The aim of the game is to pinch international brands off the big two brewers, which is a good thing.

In decades past, Foster’s and Lion would dominate the market with the local super-brands such as Victoria Bitter and XXXX.

Those brands are the subjects of huge campaigns to rekindle demand, as the current generation of young drinkers are far less likely to commit to a single beer, or even beer itself.

International beers will probably have a much better chance of maintaining market share with consumers with a much broader drinking palette.

Wrapping up

The two deals takeaways from yesterday’s Commonwealth Bank of Australia results is that chief executive Ian Narev won’t be hurried into making an acquisition just because the times are good and the stake purchase of Aussie Home Loans could be a dicey prospect.

"I am sceptical and so is the (CBA) team, because we've all seen too many examples of doing deals because the spreadsheets look good," Narev said, according to The Australian.

"Our bar is set high for M&A – we have to be able to add more value than the next highest bidder.”

However, the Commonwealth Bank has made a play to increase its one-third stake in Aussie Home Loans to 80 per cent, and possibly 100 per cent, which raises competition concerns.

The Australian’s John Durie makes the solid point that yesterday’s profit numbers mean: "it would be a brave call by the ACCC to accept the CBA argument that the purchase helps competition by backing independent distribution channels”.

Meanwhile, Ansell says it remains "committed to growth through acquisitions,” but is conducting a 2-3 million share buyback program as part of a balanced approach.

And finally marketing company STW Group is easing up on the acquisitions front after booking a net profit of $44 million.

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