BREAKFAST DEALS: Packer hang-ups

Telstra is eyeing James Packer's Consolidated Media Holdings stake but a few roadblocks stand in the way.

The match between Telstra and James Packer’s Foxtel stake seems made in heaven. However, there are a few things standing between David Thodey and that much needed content. Breakfast Deals can think of four. While we’re on telcos, Optus and Vodafone are taking the fight up to Telstra with a mobile coverage joint venture. Meanwhile, BlueScope Steel has made some headway with its restructure by selling a US asset, but what’s with that flat lining share price (and we mean dead flat)? Speaking of the land of the free, Auroro Oil & Gas will have to up its bid to nab US-focused Eureka Energy.

Telstra Corporation, Foxtel, James Packer

It’s been widely reported that billionaire James Packer wants to sell his majority stake in Consolidated Media Holdings, which owns 25 per cent of Foxtel. Telstra Corporation chief executive David Thodey has made it widely known that the telco would like to purchase that 25 per cent stake. It sounds simple, but there are a few roadblocks.

Firstly, let’s look at the basics. According to The Australian Financial Review, Moelis & Co believe that Packer would want at least $4.00 a share for his 50.05 per cent stake in CMH, a total of $1.1 billion. Given that a full takeover offer would probably have to follow, the final price would be $2.2 billion. Telstra’s got the money, but they’ll have to persuade the register that a couple of billion would be better spent on a larger stake in Foxtel, rather than capital management.

Secondly, Telstra isn’t the only party interested in Foxtel. It’s understood that News Limited – which also owns 25 per cent of the pay TV company – isn’t just interested in CMH but is the only party to have held talks with it so far. Telstra would also have to contend with Kerry Stokes’ Seven West Group, which owns a 24 per cent slice of CMH.

Thirdly, the Australian Competition and Consumer Commission has made it clear that any move by Telstra to increase its stake in Foxtel would be watched very closely. Seven would receive the same treatment, perhaps more because it operates in the same medium. The only company with an inside line to Foxtel that’s not seen as being particularly troublesome is News Limited. However, it should be noted that Telstra won itself significant praise from the ACCC and its news chairman Rod Sims for the way it conducted itself during the national broadband network negotiations.

Fourthly, Packer looks like he’d use the proceeds of this sale to try to seize control of Echo Entertainment and, with that, the Sydney casino market. As such, he has to tread accordingly. Yesterday it emerged that Crown Limited, Packer’s near-majority owned gaming company, is looking at a possible Australian denominated bond issue of around $200 million. Potential investors will want to know a little more about the developments at CMH and Crown before taking such an issue.

Vodafone, Optus

Speaking of telcos, Vodafone Hutchison Australia and Optus have joined forces to take the fight up to Telstra Corporation over mobile phone users. Optus and Vodafone will now share mobile sites and Vodafone customers will be allowed to roam on the Optus network. The move comes as VHA continues to throw money at its troublesome network that caused an exodus of customers to Telstra, which beat both companies in the race to get a 4G network up and running.

The joint venture still needs to be approved by the Australian Competition and Consumer Commission. If it wins the green light, Optus will be able to expand its 3G and 4G footprints, better enabling it to chase Telstra more effectively.

BlueScope Steel, NCI Group

Embattled BlueScope Steel has seemingly begun the sales process that forms part of the radical restructure that got the market talking earlier this year. BlueScope has offloaded its American-based metal panels business, Metl-Span, to NCI Group for $US145 million ($140 million). Australia’s largest steelmaker said it expects to make a profit of $US9 million on the sale, that’s before $20 million in foreign exchange losses are taken into account. The Australian dollar really isn’t a friend of BlueScope at the moment.

The steelmaker’s share price has been in a prolonged state of range trading since its collapse in mid-November, when it announced its highly dilutive $600 million capital raising. That capital raising was at 40 cents a share and the stock has been almost bang on that price ever since. Given that underwriter Credit Suisse was left with a shortfall of about $135 million, it really looks like the stock is fixed until the investment bank can offload all the stock it needs to.

Aurora Oil & Gas, Eureka Energy

As foreshadowed three days ago in this column, Aurora Oil & Gas has met resistance for its $107 million on-market bid for ASX-listed, US-focused shale gas and oil company Eureka Energy. Despite the 36 per cent premium Aurora has on the table, Eureka’s board has told its shareholders not to take the 45 cents a share offer, with the target’s share price consistently trading above the bid.

So the pressure is on Aurora to increase the offer, significantly. The target’s stock closed at 50.5 cents, indicating that the market is expecting at least a 12 per cent bump, or a rival bidder. Without any whispers of another player entering the fray – though there’s time – it’s over to you Aurora.

Dulux Group, Alesco Corporation

Dulux Group set pulses racing earlier this week by snapped up a 19.96 per cent stake in Alesco Corporation as part of a $188 million bid for the company. Now we officially know who enabled the audacious move. Northcape Capital, BT Financial and IOOF’s Perennial all filed substantial shareholder notices to the ASX.

The latter looks to have exited Alesco entirely, while BT has shed almost three quarters of its 8.3 million shares and Northcape offloaded a little more than 20 per cent of its 4.75 million shares. Earlier reports had indicated that Colonial also sold into Alesco. This still might be the case, assuming that they originally owned less than the 5 per cent substantial shareholder threshold.

Mantra Hotels, CVC Asia Pacific, UBS

CVC Asia Pacific is reportedly having a better time with its Mantra Hotel business, with bidders reportedly lining up. CVC, which is selling the business in conjunction with fellow owner UBS, was forced to hose down rumours that it’s already found a buyer for the company. At the moment, it looks like it’s found several potential bidders for the business.

The Wall Street Journal understands that the list of interested parties includes Archer Capital, CHAMP Private Equity, Amalgamated Holdings, InterContinental Hotels & Resorts and a handful of fund managers. Apparently France’s Accor is also believed to be interested, having just picked up Mirvac’s $327 million hotel business with some help from Singapore’s Ascendas.

Wrapping up

Gina Rinehart’s Hancock Prospecting has reportedly formalised the structure of its equity arrangements with the Roy Hill project investors. The Australian reports that Rinehart now has a framework for South Korea’s POSCO and Japan’s Marubeni to take 12.5 per cent and South Korea’s STX to take 2.5 per cent. The deal solidifies Rinehart as Australia’s richest person.

Genworth Financial says three things must line up before it will list its Australian operations on the stock exchange. The Australian Financial Review brings comments from the company’s local chief executive, Ellie Comerford, who says the US parent company is waiting for a more reliable equity market environment, regulatory approvals and solid business performance. Given that the planned float of 40 per cent of the Australian operations was called off almost immediately after the realisation that the local business had taken a dive, one must assume that it’s the latter item that needs the most improvement.

And finally, fresh from its victory at Spotless Group, Pacific Equity Partners is reportedly trying to get one of its assets away. The AFR reports that PEP is hoping to get Link Market Services away for $1.5 billion, with Goldman Sachs advising and PricewaterhouseCoopers putting together a vendor due diligence report.