BREAKFAST DEALS: Parched Billabong

Billabong awaits the end of due diligence from its two suitors, while NAB may re-assess options for its UK property loan book.

Billabong International reaches an unfortunate anniversary this week as chief Launa Inman waits for the company’s two suitors to wind up due diligence. National Australia Bank boss Cameron Clyne is reportedly investigating what could be done with the UK commercial loan book. Meanwhile, Gina Rinehart isn’t at the top of Sam Walsh’s agenda now that he’s running Rio Tinto and Whitehaven Coal bid speculation just won’t go away.

Billabong International

Billabong International has some important dates ahead of it.

On Wednesday, it will be one year to the day that the troubled surfwear retailer received an indicative offer from TPG Capital for $3.00 a share.

On Friday, chief executive Launa Inman will hand down half-year results, with the six-week deadline for two consortiums proposing $1.10 a share, or $527 million for the lot, set to expire the following Monday.

That $3.00 a share bid is now all but a distant memory. The stock is trading at 96 cents a share, a yawning 13 per cent discount to the current $1.10 indicative offer price.

Media reports indicate that Billabong will probably have to wait another month before offers are tabled.

Billabong director Paul Naude is leading one bidding consortium with the backing of New York private equity fund Sycamore Partners, while retail giant VF Corporation and Altamont Capital Partners have also teamed up.

It’s unusual for a target with two potential bidders to be trading at such a discount to the indicative offer prices. This just reflects the lack of risk that investors are willing to take on in relation to Billabong.

National Australia Bank, Clydesdale Bank, Yorkshire Bank

National Australia Bank chief Cameron Clyne could be preparing for a U-turn of sorts if a report out of the United Kingdom, the source of so much of his troubles, is to be believed.

According to The Financial Times, NAB has approached advisers to help figure out what the future of its troublesome £5.3 billion ($7.98 billion) property loan book should be. A sale could be on the cards.

Almost 12 months ago, NAB killed any future loans to the UK property market and has since indicated that it will let its existing loan book wind down.

The Financial Times report indicates that NAB could be looking at reversing that decision if there’s a bidder out there with enough interest.

It’s been almost a month since Spanish bank Santander denied reports that its executives had spoken to NAB about purchasing Clydesdale Bank and Yorkshire Bank – the report actually said that Santander was talking internally about a bid. It’s a revealing, misleading denial.

In any case, there have been no more mentions of Santander since then.

Clyne has stated quite plainly that he won’t pull out of the UK for a fire sale price. Whether he can extricate himself from the loan book, and not the bank’s retail network, remains to be seen.

Rio Tinto, Gina Rinehart

Mining billionaire Gina Rinehart might want Sam Walsh to move the company’s headquarters to Perth and put her Hancock Prospecting joint ventures at the top of the agenda.

But the new Rio Tinto boss has a broader, more important task ahead of him.

Commonwealth Bank analysts have compared Rio to BHP Billiton in the mid 1990s, when a string of bad acquisitions muddied the waters so badly the market found it difficult to remember that under those mistakes lay a stellar portfolio of assets.

One analysts has written quite simply that: "The template for what Rio needs to do next already exists – in our view, Rio should follow the example set by Paul Anderson and Chip Goodyear when they cleaned up BHP.”

The analyst added that if that view is adopted, two-thirds of the portfolio needs to be improved, closed or sold.

Granted, that’s the opinion of one person, who doesn’t speak for Rio at all. But it does underline just how much Walsh has to do aside from collecting the winnings from the iron ore business, which he used to head.

According to Fairfax, Walsh wasn’t too forthcoming with details about ramping up the projects with Rinehart, indicating that he’s probably thinking about other matters.

"We have works underway in terms of development, the drilling work and other work before you can make any decisions,” he said, according to Fairfax.

"Gina is also working on her own project, the Roy Hill project, and clearly there needs to be a balance for her in terms of what we physically bring forward because she will need to finance everything that goes on … so for us it's a balance, and with her it’s a balance.”

One balancing act that he needs to get right is getting rid of Pacific Aluminium.

Whitehaven Coal, Nathan Tinkler

Another case of ‘unfinished business’ for 2013 is Whitehaven Coal, which has been the subject of ongoing speculation that has led precisely nowhere.

As we all know, mining tycoon Nathan Tinkler is sitting on a 19.4 per cent stake that’s worth about $614 million at current prices. Trouble is that he’s widely reported to owe Farallon Capital $700 million.

Yet another report has emerged indicating that Tinkler has been quietly speaking to investors in New York about a potential deal. This time, the report is coming from The Australian.

Analysts are still divided on what’s the more likely outcome – another privatisation tilt from Tinkler or a Chinese-led buyout.

Either way, the consensus is firming. Whitehaven is a takeover target now that it has conditional approval from the federal government for Maules Creek.

Wrapping up

As confirmed last week, PrimeAg Australia has agreed to offload a 60 per cent in its land and water portfolio to US asset manager TIAA-CREF for as much as $126 million. The Australian Foreign Investment Review Board still has to give it the green light.

Meanwhile, The Australian Financial Review reports that Macquarie’s late entrance into the posse of Brisconnections debt holders is causing some frustration. Apparently, BNP Paribas doesn’t want Macquarie in the room for negotiations as a ‘lender of record’.

The deadline for a deal is February 28.

And finally, the same newspaper has received the counterattack from Cathay Fortune billionaire Yong Yu to Discovery Metals chairman Gordon Galt, who complained to the corporate regulator about the Chinese private equity firm’s conduct during the now cancelled takeover tussle.

"Cathay Fortune committed and expressed a huge amount of effort, time and financial resources in making a $1.70 [a share] cash offer for Discovery,” Yu said in a statement to The Australian Financial Review on the company’s $830 million offer.

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