BREAKFAST DEALS: Packer squeeze

James Packer keeps pressure on the leadership at takeover target Echo Entertainment, while GE buys into Australia's mining boom.

Billionaire James Packer is using the controversial dismissal of Echo Entertainment boss Sid Vaikunta to pressure the company in the lead up to a possible transaction. In the meantime, fellow billionaire Gina Rinehart has apparently tried to convince him to stay in the media business, through a Fairfax Media stake. Meanwhile, General Electric is getting into the Australian mining equipment business through its strong bid for Industrea, CSR can’t rule out a rival bid for Alesco Corporation and Aurora Oil & Gas is apparently tweaking the numbers of its capital raising.

Echo Entertainment, Crown, James Packer

Billionaire James Packer is further exploiting the controversy surrounding the dismissal of Echo Entertainment general manager Sid Vaikunta to heap pressure on the company he’d like in the Crown Limited stable. According to The Australian, lawyers on behalf of Crown have written to Echo chairman John Story asking for an explanation of how confidential emails and text messages about the scandal were leaked.

It’s understood that the letter makes the case that the issue is particularly important given the concession of new Echo boss Frederic Luvisutto that visitors have been put off by "three months of bashing” in the media. It also comes with a government report into the dismissal set to land tomorrow.

Crown has a 10 per cent stake in Echo, the maximum allowed. Packer is pushing the NSW government to let him increase the stake. In the meantime, he’s doing all he can to discredit the current board and management in a bid to win control.

Fairfax Media

Speaking of Packer, The Australian Financial Review believes that mining billionaire Gina Rinehart approached him recently about taking a stake in Fairfax Media, the newspaper’s publisher. Packer apparently declined. Rinehart is also understood to have lent on Hungry Jack’s founder and Ten Network director Jack Cowin about the issue.

Rinehart is pushing for two board seats because of her 12.6 per cent stake in the company. Packer has made it abundantly clear with his movements at Consolidated Media Holdings that his family’s relationship with the media industry is coming to a swift close in order to pursue a gaming empire.

Macquarie Group, E.ON

Investment bank Macquarie Group has successfully led a consortium bidding for the natural gas transmission assets of German utility E.ON AG for €3.2 billion ($A4.07 billion). The enterprise value is €2.9 billion, thanks to €300 million being put down to pension liabilities and "other assets”. This comes after Macquarie’s purchase of gas company RWE AG last year.

The winning consortium consisted of Macquarie, European Infrastructure Fund 4, Canada’s British Columbia Investment Management Corp, Infinity Investments of Abu Dhabi Investment Authority and the capital investment arm of Germany’s Munich Re AG. Macquarie beat out German giant Allianz and major utility GDF Suez SA. The Wall Street Journal understands that Macquarie is planning to tap bond markets to refinance about 70 per cent of the deal.

General Electric, Industrea

American heavyweight General Electric has splashed $700 million on Australian mining equipment company Industrea in order to get a foothold in the mining equipment market and exposure to Asia’s growth. The target’s board has unanimously recommended the $1.23 cash offer in the absence of a superior deal and the findings of the independent expert’s report.

Given that the offer is a 43 per cent premium to the previous trading price, it’s not hard to see why the board thinks this deal is "fair value”. While headline figure is about $470 million, when you take into account the target’s debt, that number jumps to around $700 million.

The curious aspect of this deal is GE has given Industrea an opportunity to sell its open cut mining and civil earthwork equipment business Industrea Mining Services. If Industrea can get the division away above a certain price, which was not disclosed for obvious reasons, then the company’s shareholders will receive even more. If they can’t get the asset away, GE gets to keep it. IMS is Industrea’s only above-ground arm, so presumably GE is only particularly interested in the underground assets.

CSR, Alesco Corporation, Dulux Group

Building materials company CSR has reportedly refused to rule out spoiling the Dulux Group party and putting up a rival bid for Alesco Corporation. The Australian Financial Review reports that managing director Rob Snidel made the comments at the company’s full year results presentation. This would give a little more credibility to the premium that Alesco is trading at to the Dulux bid of $2, closing yesterday at $2.05.

CSR is also still waiting on the outcome of the Tomago aluminium smelter. Through its 70 per cent stake in Gove Aluminium finance, CSR owns 25 per cent of Tomago, which is majority owned by Rio Tinto. Of course, Rio is getting out of much of its aluminium business and CSR has said that it might consider exiting Tomago if the opportunity arose and the conditions were right.

Aurora Oil & Gas, Eureka Energy

Aurora Oil & Gas has demonstrated to the market the risks of launching capital raisings that aren’t underwritten. The Australian Financial Review reports that Aurora is expected to tell the market that it raised cash at $3.55 a share, not $3.65, and a lot less of it than the $233 million that it was hoping for. It’s made a little harder for Aurora because it’s duel-listed, with another code on the Toronto Stock Exchange.

Aurora needs the cash pile for its proposed acquisition of Australian-based, US-focused Eureka Energy for $107 million – an offer than has been rejected by the target – and the $US95 million purchase of an extra 6 per cent interest Texas-based Sugarloaf AMI.

ASIC

The Australian Securities & Investments Commission has updated its guidance to give some greater clarification around downstream takeover laws and why it refers some matters to the Takeovers Panel and not others.

The question ASIC has tried to clear up is whether an Australian company should expect a premium if control of their company changes. The examples that come to mind are Leighton Holdings when Spain’s ACS took Hochtief, as well as the more recent bid for Extract Resources after major shareholder Kalahari Minerals was taken by China Guangdong Nuclear Power.

Section 606 of the Corporations Act says that companies cannot take a stake in another listed company of more than 20 per cent without a full bid, unless it meets one of the exemptions in section 611. What the guidance stipulates is that a company should not expect to be granted an exemption if it does meet one of those conditions.

Wrapping up

Oil Search has reportedly attracted a lot of interest in its exploration acreage in Papua New Guinea. Speaking to Dow Jones, chief executive Peter Botten described some of the bids as "pretty attractive”. Oil Search is trying to offload some of these blocks in order to focus on its LNG export project with ExxonMobil.

CVC has increased its stake in residential developer Villa World to the ominous 19.9 per cent level, creating speculation that the company will opt for a full takeover of the $75 million company. SP AusNet is set to raise $434 million with Macquarie Capital and UBS handling the calls. Unlike the Aurora issue, it’s fully underwritten.

And finally, medical diagnostics company Sonic Healthcare will purchase Healthscope’s pathology business for $100 million. The business covers NSW, Western Australia, Queensland and the ACT.