BREAKFAST DEALS: Packer's punch

Packer lets everyone know just where Echo went wrong, and deals are afoot for the financial services sector.

Despite some fighting words from Echo Entertainment chairman John O’Neill, the balance of power really looks to have swung in the direction of billionaire James Packer as Sydney contemplates a future with another casino. Given the state’s financial position at the moment, more is more right now. After some quiet time the financial services sector has a couple of deals in consideration. Meanwhile, Drillsearch drills first in the race to build a winning formula for Acer Energy, Westfield Group and AMP get simple, and Whitehaven Coal gets to the end of one of the strangest weeks in its history.

Echo Entertainment, Crown, James Packer

Gaming billionaire James Packer is showing an ability to not just outmanoeuvre Echo Entertainment in a quest for his own Sydney casino, but a willingness to point out where his rival went wrong.

Speaking to Fairfax Media, Packer said Echo made a mistake when it declined to offer him a seat on the board, after which he conducted a campaign to get rid of then-chairman John Story.

"They behaved like they had all the cards, but if they had put me on the board I wouldn't have been able to be in discussions for a second licence as it would have been viewed as a conflict,” Packer told Fairfax.

Packer has now ruled out including Echo in his plans for the $1 billion Barangaroo project, saying separately that this is his chance to do "something special” like his late father Kerry.

Echo does look to have underestimated Packer’s potential to win the O’Farrell government over for a casino licence after Echo’s exclusivity expires in 2019. But if you cast your minds back to when these two were first jostling, the prospect of Packer going it alone in Sydney wasn’t really at the forefront of people’s mind.

Packer’s self-belief and political nouse through the likes of Labor figures Mark Arbib and Karl Bitar appear to have paid dividends many didn’t see coming. Remember, he now appears to have some pretty good support on both sides of politics.

Now, it’s up to Echo chairman John O’Neill to mount a counter-attack plan that will prepare his company for the threat posed by Packer’s competition when exclusivity expires in 2019. That’s a few years to get Echo’s ‘house in order,’ a phrase doing the rounds in this morning’s business papers.

While the business is showing signs of improvement, gross revenue for the 16 weeks of this financial year is up 13 per cent, Echo has to rebuild its reputation with the political class.

There’s something about casinos, particularly ones designed to attract high rollers that encourages a particularly strong convergence of key players in business and politics.

Victorians will remember well the controversy in the 1990s when then Premier Jeff Kennett handed the lucrative Crown development deal to Liberal ally Ron Walker and his business partner Lloyd Williams. Kennett was seen as close to both these men and Walker continues to chair the Australian Formula 1 Grand Prix, established during the Kennett era, to this day.

Echo needs to repair its relationship with the state government so that it’s on equal footing with Packer when the rival emerges at Barangaroo.

For the state’s own sake, they should welcome any and all efforts on behalf of Echo in NSW, because the government is facing a particularly dicey fiscal issue.

Ratings agency Standard & Poor’s said in a statement that there’s a one-in-three chance that NSW will lose its AAA credit rating.

S&P is calling for the state government to raise taxes and sell assets in order to improve its financial position.

Asset sales are already well underway; perhaps S&P is pushing for more, or more quickly, or both.

SFG Australia, WHK Australia

Some deals are brewing in the recently quiet financial services industry, with a wealth management merger and a broking house tilt on the boil.

The Australian Financial Review understands that SFG Australia and WHK Australia are in discussions about a potential $600 million merger after the former approached the latter.

The newspaper reports that former AMP boss Paul Batchelor is the architect of the deal and is acting as a consultant to SFG.

The news comes as troubled broking house Wilson HTM has been thrown a helping hand by Mariner Corp, but we shouldn’t expect a willingness to marry right away.

The hostile $24.5 million, two-for-three scrip offer, hasn’t been accepted or rejected by the target, which is meeting to consider its next move. The 23.3 cents of scrip value looks opportunistic, given the shares hit that level in mid-August.

Mariner, you might remember, had a crack a few months ago at another troubled broker, Austock.

The bid was a bit of a disaster. Mariner lobbed an offer of 10.5 cents a share, which had to be increased to 11 cents because the suitor had purchased shares in Austock not long before the offer at that price – this is M&A regulation 101.

It was also discovered that a handful of regulatory approvals required for a bid had not been secured.

Austock responded by offloading its property fund management business to Folkestone, which prompted a stern rebuke from Mariner for what it believed was "a blatant attempt” to sabotage its advances.

Mariner withdrew its offer because it believed the sale voided the conditions of its bid, but it also went to the Takeovers Panel in the hope of winning an unacceptable situation ruling.

The Takeovers Panel delivered, but against Mariner, not Austock.

Drillsearch, Acer Energy

Drillsearch appears to have fired a pre-emptive strike against a rival bidder preparing an offer, with an increased $132 million bid for Cooper Basin explorer Acer Energy.

The target has announced that it has received a rival proposal from an unnamed bidder. It’s widely assumed that Senex Energy has a hand in the rival proposal, after building a 7.6 per cent stake in Acer.

Drillsearch is sitting on 19.9 per cent after winning the approval of Republic Investment Management, which will also hand over another 18.8 per cent.

This means that the most crucial condition on that improved offer, that Drillsearch gets 40 per cent, is looking assured.

The market has always expected a higher offer to be forthcoming from Drillsearch or another party. The target’s share price has consistently traded at a premium to Drillsearch’s initial 25.5 cents offer.

Arrium, Steelmakers Australia

While we’re talking share prices, the support the market was lending Australian steelmaker Arrium exploded yesterday on news that its Asian consortium suitor is trying to re-engage.

Arrium shares finished the session up an eye-catching 8 per cent, which leaves them 17 per cent higher than the 75 cents offer that the company has knocked back.

So far, the suitor Steelmakers Australia hasn’t been forthcoming with a higher offer. At present it only looks like main bidders Noble Group from Hong Kong and POSCO from South Korea are happy to keep playing softer conditions and due diligence details.

AMP, Westfield

It turns out that reports from mid-August hinting at a significant reworking to the joint venture between Australian retail property giant Westfield and AMP Capital were right on the money.

Yesterday, the AMP subsidiary announced a simplification of the 50-year relationship, with both parties exchanging stakes and redeveloping two key assets.

Here’s how it works. AMP Capital gets 100 per cent ownership of Macquarie Centre in Sydney, the Pacific Fair on the Gold Coast and Garden City in Perth that are currently held by Westfield and Westfield Retail Trust (WRT).

In return, Westfield and WRT will pick up AMP Capital’s interest in Mr Gravatt in Brisbane, and will have a 50 per cent stake in Warringah Centre in Sydney with AMP, and a 50 per cent stake in Knox City in Melbourne.

Additionally, the Canada Pension Plan Investment Board and Harina Company (owned by Abu Dhabi Investment Authority) are investing $872 million in AMP Capital, which will in turn be passed on to an AMP vehicle overseeing the Macquarie Centre and Pacific Fair. AMP plans to spend $970 million in total redeveloping these centres.

Whitehaven Coal, Nathan Tinkler

It’s been an eventful few days for Whitehaven Coal, with more to come before the week is over.

While many of the major mining houses have cut production and costs at coal operations, Whitehaven becomes the first player shut down a coal mine in NSW.

The Sunnyside mine in NSW will be closed down in large part due to the falling price at which coal is changing hands for around the world.

But Whitehaven has also secured approval for its most valuable project, the $651 million Maules Creek mine, from the New South Wales Planning Assessment Commission. Now it’s just awaiting approval from the federal government.

Whitehaven should emerge from a trading halt today, after releasing its third quarter production report yesterday.

The company, or more specifically most of its directors, were recently the subject of a threat from major shareholder Nathan Tinkler that he’d throw his 19.4 per cent stake against most of the board re-elections unless they released certain pieces of information.

No one know if Tinkler is trying to shake up the company in the lead up to another bid to take it private, presumably at a price less than the $5.3 billion he couldn’t quite throw together this year, or whether he’s planning on existing his stake altogether. Then again, Tinkler is an unconventional player and there could be something totally different in mind.

Either way, Whitehaven shares should begin trading again today and we’ll get to see what the register makes of all this.

Wrapping up

After yesterday’s annual general meeting, keep an eye on Karoon Gas. Granted, quick glance at the company’s share price chart shows that investors that bought in at the beginning of 2009 have been in for a wild ride.

But Karoon is in the middle of assessing the potential for the Poseidon field in conjunction with US energy giant ConocoPhillips. According to The Australian, the explorer told its investors yesterday that a deal could be done with Japanese giant Inpex or our own Woodside Petroleum, which both have their own development up north.

Gas pipeline company APA Group has made up a little bit more ground on the Hastings Diversified Utilities Fund (HDF), with its stake rising to 82.7 per cent from 78.7 per cent.

The company has extended its unconditional takeover offer for HDF, presumably for the last time, amid an announcement from the acquired fund that chief executive Colin Atkin will leave at the end of the year, now that APA is in charge.

Staying with resources, ASX-listed and Africa-focused gold company Resolute Mining, which is under-capitalised at the moment, has complicated the picture for Chinese investment group Zhongrun.

The Chinese player could finish up with 51 per cent of Resolute if its $84.7 million deal is accepted. If that proposal doesn’t go ahead, Resolute is now proposing that major shareholder Noble Group could recapitalise the company itself with a n $85 million convertible note.

Meanwhile, Fairfax reports that Western Australia’s Co-operative Bulk Handling (CBH) has weighed in on the crack that America’s Archer Daniels Midland (ADM) is having at Australia’s GrainCorp.

The directors aren’t happy with the idea of Australia’s dominant east coast grains handler falling into foreign hands, arguing that the loyalties of ADM and not to Australia’s farmers.

GrainCorp’s first loyalty of course is to its own shareholders. But CBH would argue that GrainCorp has many growers on its register and that domestic ownership of important assets like the ones GrainCorp has on its books is advantageous to the host country as a whole.

Elsewhere, pub owner ALE Property Group is tapping the market for $40 million through an equity raising at $2.13 a share.

It’s a pretty skinny 9.75 per cent discount to the last trading price, which is a pretty good effort given the much heavier discounts that were being offered by some bigger players just a couple of months ago. Macquarie Group and UBS are underwriting the deal.