BREAKFAST DEALS: Packer attack

Now that John Story’s date with destiny has been set, the embattled Echo Entertainment chairman could take a very different strategy to building support than the man trying to unseat him, billionaire James Packer. Meanwhile, the ASX is thinking about purchasing Link Share Registry for almost eight times the price it sold it for seven years ago – not a fun experience. Elsewhere, Norton Gold Fields has some important details of the bid from China, Elders and Ruralco are just strategic friends, for the moment, and Fitness First is slimming down in the wake of a debt-for-equity swap.

Echo Entertainment, Crown, James Packer

While the date of billionaire James Packer’s showdown with Echo Entertainment chairman John Story is set for July 20, the battle for the hearts and minds of shareholders will really get going this week.

Echo has bowed to pressure from Crown to grant an extraordinary general meeting to decide the future of Story and, if he is ousted, whether former Victorian premier Jeff Kennett should replace him.

Packer has continued his attack on the Echo board by emailing Fairfax newspapers to complain that, in his view, Echo’s performance has been poor and its chairman is substandard.

"Echo's casinos have been underperforming for years – in 2005 normalised EBITDA from Echo's casinos exceeded Crown's, but now Crown's casinos generate $300 million more,” Packer said in correspondence with Fairfax. "In all the recent debate I have not heard one analyst or shareholder defend the performance of John Story. No one is disputing Echo's failures under John Story – performance and governance are poor,” said the billionaire.

Echo, meanwhile, has already met with major shareholder Perpetual – which has 9 per cent of Echo, second only to Packer’s Crown – and is set to meet with more major stakeholders behind closed doors this week, including AMP and Ausbil Dexia, according to The Australian.

This highlights the difference in style between Packer and Story that could play out over the next month or so. Packer has made it clear he intends to fight in the public arena, taking out full-page ads attacking the Echo chairman.

Story on the other hand is expected to appeal directly to institutional shareholders to sure up his numbers, safe in the knowledge that he need only secure 50 per cent support to survive.

It’s crucial that Story keep his cool during this assault on his reputation because an undignified defence might sow the seeds of doubt for Packer to launch another destabilising move down the track.

ASX, Link Share Registry

ASX Ltd is facing an unfortunate scenario akin to asking an old partner back after years of thinking yourself better off without them. Last week, the market operator told the market it operates that it has signed a confidentiality agreement for a possible acquisition of Link Market Services.

ASX and joint venture partner Perpetual sold Link to Pacific Equity Partners back in 2005, tired of its unimpressive returns compared to manic fortunes from its core business.

Having been in PEP’s hands for almost seven years – the rough maximum timeframe the private equity generally holds assets – the business is now worth more than $1 billion, according to estimates. Unsurprisingly, PEP is looking to sell.

The Australian Financial Review understands that five private equity firms – Kohlberg Kravis Roberts, Bain Capital, The Blackstone Group, Hellman & Friedman and The Carlyle Group – are interested in Link. Apparently they can still see some value in the business. Hence, if the ASX wants to correct that mistake, it’s really going to cost them.

The old flame analogy is a little unfair. When Link was cut loose it 2005 it was an undeveloped business and hardly the international powerhouse that ASX finds today. The market operator was making some handy profits thanks to the enormous bull market that still had some time to run. Link, by comparison, was a child.

But now Link is all grown up and the ASX, tired of battling a stubborn index hell-bent on range trading, is interested.

Norton Gold Fields, Zijin Mining Group

China’s largest gold producer Zijin Mining Group has revealed the terms of its conditional, off-market $212 million cash play for Norton Gold Fields.

The target’s board has thrown its full support behind the deal that offers shareholders 25 cents a share, plus a special 2 cent dividend to be paid once Zijin acquires 50.1 per cent of Norton, at which point the proposal will become unconditional. This increases the total value to $229.4 million. Zijin already has almost 17 per cent of the target.

There’s still some things to be sorted out, namely strategic direction and the management picture once the deal is completed.

Norton shares jumped 9.5 per cent on Friday to 23 cents a share, indicating that the market thinks there’s a reasonable chance this deal will go through, but there’s still 4 cents for speculators to make a run for.

Elders, Ruralco Holdings

Shareholders in embattled agriculture company Elders have received some long-awaited good news – someone is buying in.

Rural services group Ruralco – we like logical names for companies here – has built a 10.1 per cent stake in Elders, sparking a 22 per cent rally in the share price due to takeover speculation.

However, both companies have stated that the stake is merely strategic. Ruralco could conceivably have built a defensive stake against other possible suitors in anticipation of a bid down the track.

CBA analyst Jordan Rivers has suggested just this, although added that Elders probably won’t be a takeover target until 2014.

Elders shares have lost 95 per cent of their value over the last five years, perhaps explaining why Ruralco is able to buy in with such ease.

Fitness First Australia, BC Partners

Fitness First Australia will be 24 gyms lighter after its British parent put a quarter of its network on the market to raise capital. Boutique advisory firm 333 Capital has been brought on board to offer guidance on the slim-down.

The sale is part of a restructure brought about by new funds Oaktree Capital and – the appropriately named – Marathon Asset Management, which agreed on a debt-for-equity swap deal with Fitness First’s British parent. The debt in question was $890 million.

Fitness First was set for a Singapore sharemarket float last year, but like many other IPO plans market volatility got in the way. The owners then tried to shop the company around for sale, but called that process off around Christmas.

Now US hedge funds are using their debt leverage to force a restructure to possibly collect a big payday when the business turns around.

Close watchers of the situation at CVC Asia Pacific will know that this is exactly the same scenario that Nine Entertainment is facing and, interestingly, Oaktree is one of the antagonising hedge funds there as well.

Peabody Energy, China Chengtong Holdings Group, China Datang

US coal giant Peabody Energy is reportedly holding discussions with a handful of companies, including China Chengtong Holdings Group, China Datang and Korea’s LG International Coal about the Wilkie’s Creek thermal coal mine.

According to Bloomberg, Peabody could net more than $500 million from the sale. Filings in the US indicate the LG has handed a non-binding proposal for the site.

It’s also heartening for the coal sector, which has had to endure a prolonged period of bearish commentary about its resource, to see the Chinese and the Koreans still showing some interest.

Wrapping up

Transpacific Industries Group has sought the approval of the Australian Competition and Consumer Commission to purchase the Thiess Waste Management business of construction giant Leighton Holdings. The sale is tipped to generate up to $300 million.

In resources, Newcrest Mining chief executive Greg Robinson has hit back at Macquarie Group analysts who suggested the gold company might be forced to raise capital – between $500 million and $1 billion – if gold prices continue to fall next year.

Robinson said the company hadn’t thought about raising capital, adding that the precious metal would rise next year as economic uncertainty boosted demand from risk averse investors – that’s good news?

Meanwhile, over at Fairfax Media, investor and confidant of mining billionaire Gina Rinehart, John Singleton, has come out in support of her bid for a board seat.

And finally, Telstra says it plans on signing up to Australia Post’s digital mail service, a move that could solidify the company’s bid for relevancy in a world of diminished snail mail volumes.