Breakfast Deals: Packer to the rafters

James Packer has used some of the proceeds from his recent Seek and Magellan stock sales to make a major, and so far very profitable, investment in an online US real estate group. It’s the latest sign of where his investment interest lies. Elsewhere, Perpetual has three business days to respond to IOOF’s bid for The Trust Corporation, Perilya gets a healthy $270 million takeover offer, Woolworths makes a smart political move and mining M&A hits a wall. 

James Packer, Zillow, Seek, Crown, REA Group

James Packer has put some of the proceeds of his recent Seek and Magellan Financial sales to work already, accumulating a significant stake in US online real estate group Zillow for around $300 million through Cavalane Holdings. The stake, according to Bloomberg data, is Packer’s most valuable investment beyond the 50 per cent position his family business (Consolidated Press) maintains in Crown.

Packer-related entity Cavalane Holdings, which held the stakes in Seek and Magellan, has purchased a little over three million Zillow shares to claim 9.35 per cent, according to a 13G filing with the US Securities and Exchange Commission this week. A 13G filing indicates the investor owns between 5 and 20 per cent, but is planning to be passive and not exert control over the business. In other words, they like the business as it is and are just trying to make money.

The move is a further signal that Packer has two main investing interests: gambling and online classifieds.

It has largely proved successful of late, with Crown's stock up 40 per cent this year and the Seek sale netting a $50 million profit. There’s every sign so far that Zillow will prove as shrewd.

The Australian reports that Packer has been acquiring the stake throughout the year on the advice of Caledonia Investments. This means he is already well ahead, particularly if he bought before the Aussie dollar’s parity resilience was shattered.

Zillow’s stock, which listed in 2011, hit an all-time high overnight and is up 270 per cent since January 1. Even if Packer had started building his shareholdings a week ago he would be well in the black, with the stock surging 20 per cent since.

There are plenty of commentators comparing Zillow to Australian online real estate market leader REA Group (owner of realestate.com.au). It is valued at a similar figure – between $3 billion and $5 billion – though there is the view that Zillow has more room for growth given the comparative market sizes. The note of caution, however, is that competition is much fiercer in America.

Packer was no doubt won over based on the comparisons to REA, and is willing to back it in to outflank the competitors, led by Trulia. Or perhaps he might also buy into the latter, as Trulia is a company also recommended to him by Caledonia, according to The Australian.

IOOF, Perpetual, Equity Trustees, The Trust Corporation

The Trust Corporation is keen to test the waters with latest suitor IOOF Holdings, giving previously favoured bidder Perpetual three days to respond to the new offer. Trust said it considered IOOF’s proposal “likely” superior to that of Perpetual. As alluded to in yesterday's Breakfast Deals, this is what the market was expecting based on share price movements. Now the question lingers as to Perpetual's likely response.

It has until Monday at 1700 AEST to match or better the IOOF offer and may decide it’s not worth the hassle given there’s still the risk the Australian Competition and Consumer Commission will put the brakes on a deal. It does have the financial capacity to respond however, and the latest market moves provide reason to suspect it will follow through.

Perpetual closed at its lows, while Trust ended near its daily highs on Wednesday. Investors appear to be betting that a new offer will provide a boost to Trust, while being a possible near-term downside risk to Perpetual (they would be paying more, after all). This sentiment appeared to change around lunchtime when Perpetual was up 1.5 per cent.

In the meantime, the company that kickstarted the bidding process, Equity Trustees, is expected to sit pretty and wonder what will come of the 13 per cent stake Trust holds in it. 

Perilya Limited

As expected, a takeover offer has been lobbed in the direction of Broken Hill miner Perilya Limited by its largest shareholder, Shenzhen Zhongjin. The Chinese-based suitor already has a 53.4 per cent holding and a deal for complete control was always on the agenda.

What is perhaps a little surprising is the premium to the current share price of 59 per cent, which values the group at $269.4 million. Given the lack of another likely bidder, this appears to be a sound result for Perilya. Not surprisingly the board has given its (conditional) tick of approval and there appears very little likely to stand in the way of a quick resolution. What Billabong wouldn’t give for that...

Shares in Perilya lifted 43 per cent on the news to 32 cents, just below the takeover offer of 35 cents in another signal that investors expect no further offers. And who could blame them?

Woolworths, SPC Ardmona

While the competition regulator continues to keep an eye on the retail behemoths, leading supermarket operator Woolworths has made a shrewd political move in choosing to source private label canned fruit products from Victorian-based SPC Ardmona.

The ‘we care about local suppliers’ deal extends by $3 million an earlier $7 million move to source 13 lines of Select canned fruit from the Coca-Cola Amatil-owned SPC. The new Australian sourced products will be available in a year.

It’s the second piece of good news in a week for SPC, which was informed by the Labor government it would receive $25 million should it commit to operations beyond 2020. It is not known if this will be supported by the Coalition.

Mining M&A

Accounting and services firm PricewaterhouseCoopers yesterday released a downbeat assessment of mining M&A. Global deals were 31 per cent weaker in the first half and this is not expected to improve in the second half, nor next year. Even if you took out the major Glencore-Xstrata deal from last year, deals were down 21 per cent year-on-year.

The report says it isn’t a shortage of takeover targets that’s the issue, rather too few buyers. The big players are divesting and the mid-tier groups are just trying to get their own houses in order on the back of a downturn in prices.

As for Australia, the lucky country accounted for a mere 3 per cent of all mining deals in the first half.

Wrapping up

In resources, ASX-listed engineering company Monadelphous Group has signed a $235 million contract with resources giant Rio Tinto for works at the Cape Lambert Port B project in Western Australia. The contract is slated for completion by the end of 2014.

There’s more action on the gambling front, with another UK bookmaker claiming an online Australian betting company. Not long after William Hill bought out Tom Waterhouse, Ladbrokes has reached a $22.5 million deal to acquire Gaming Investments, which owns bookmaker.com.au. Speaking of William Hill, the wagering giant is looking to consolidate its Australian brands under the William Hill name, according to the AFR. This could include Sportingbet, Centrebet and tomwaterhouse.com.au.

In energy news, Dart Energy has successfully raised $11.9 million from institutional investors at a 10 per cent discount to its share price at the time of the raising. It hopes to raise a further $8.8 million from shareholders at the same price of 9 cents. On the surface it is a surprise the company’s share price shot up on the news – from 10 to 11.5 cents – until you realise that investors have a couple of days to buy in to get the offer. The entitlement date is Friday September 6 and existing shareholders have the right to feel aggrieved.

And finally, Coastal Capital has denied it is a scavenger feeding off the severely weakened Billabong International. A managing partner with the hedge fund told the AFR that the company thought rival bidders could emerge if Billabong opened its doors a little wider. It is however of the belief the Oaktree Capital, Centerbridge Partners proposal is superior to that of the solo deal put forward by Altamont Capital and preferred by the Billabong board.