BREAKFAST DEALS: PEP talks

Pacific Equity Partners gets creative with its bid for Spotless, while Wah Nam edges closer to a Brockman takeover.

Pacific Equity Partners has reportedly found a creative solution to reach the $2.80 target set by Spotless Group chairman Peter Smedley. Good news, assuming the target’s board goes for it. Meanwhile, Biota Holdings has sparked a debate about whether the Australian market is big enough for pharmaceuticals with its American reverse takeover. Elsewhere, Wah Nam International is the definition of patient in its pursuit of Brockman Resources, Hastings Diversified Utilities Fund is signing deals while suitor APA Group sweats on an ACCC call and Fortescue Metals Group might be thinking the September quarter for a magnetite spinoff.

Spotless Group, Pacific Equity Partners

Pacific Equity Partners has reportedly found the $2.80 a share in value demanded by Spotless Group chairman Peter Smedley. Then again, there’s reportedly a lot going on, but we’ll get to that in a minute. News Limited sources indicate that PEP has made a new proposal worth more than $744.1 million, by offering less cash upfront than the last $2.68 offer, but with a deferred cash consideration from the proceeds of offloading non-core assets.

So what would be sold? The Australian Financial Review says the troublesome coat-hangar business Braiform is in the line of fire. Spotless has said beforehand that it has received unsolicited offers for Braiform and decided to turn them down. Some have argued that the reason for this is Spotless would have to cop a writedown on the unit.

Another report indicates the Spotless board hasn’t scheduled a meeting on the revised proposals. Spotless told the market yesterday that discussions with PEP were ongoing and investors should not assume that a transaction would take place.

There are a lot of possible scenarios here. But for what it’s worth, the first report about the $744.1 million-plus offer also says that the original $2.68 cash a share offer – the one that Spotless flatly rejected – is still on the table. If that’s the case, it’s worth asking this question. Why keep a deal around that Spotless really doesn’t want? Perhaps the buy and sell idea has some caveats.

As has been the case with Spotless for five months, we’ll have to wait and see.

Biota Holdings, Nabi Biopharmaceuticals

Flu drug maker Biota Holdings agreed to take over Nasdaq-listed Nabi Biopharmaceuticals, but it’s a kind of backdoor listing with a capital raising to boot. Nabi hands over $US54 million in cash to acquire all Biota shares, which will then be delisted from the ASX. The subsequent Nasdaq-listed company will be 74 per cent owned by Biota shareholders, with the Nabi stockholders taking the remaining 26 per cent.

That means Biota shareholders will end up with US scrip, not something they’d be too happy about. The stock dropped 9 per cent yesterday. However, the company maintains that this is the best move to unlock value that the Australian market struggles to recognise. The move sparked much debate about what that says about the Australian market, which can be found in this morning’s edition of The Distillery.

Brockman Resources, Wah Nam International

Wah Nam International is hanging in there for the remaining shares in Brockman Resources. The Hong Kong-listed investment company has extended its cash-and-scrip offer until May 31, telling investors that liquidity could become an issue if they don’t sell now. The stock responded positively, surging 9.8 per cent to $2.24. Wah Nam is offering $1.50 cash plus 18 Wah Nam International shares for each Brockman share.

Wah Nam owns over 80 per cent of Brockman and is looking to get that figure to 90 per cent, compulsory acquisition territory. It’s been a long time coming. Having owned 55 per cent of Brockman before this offer dropped in mid-December, it’s taken Wah Nam quite a while to get close to securing its target.

Hastings Diversified Utilities Fund, APA Group

Gas pipeline operator Hastings Diversified Utilities Fund has inked a $400 million compression deal with energy player Santos as predator APA Group awaits the consumer watchdog’s verdict on a $1.8 billion takeover offer. HDF, which is resisting APA’s advances, will install $100 million worth of inlet compressors on the pipeline between Moomba in South Australia to Queensland’s Wallumbilla.

The bid for HDF, which winds up on May 31, is currently being scrutinised by the Australian Competition and Consumer Commission. The ACCC is concerned that a merger between the two would put 80 per cent of the long-haul gas pipelines on the east coast under one roof.

Fortescue Metals Group

Fortescue Metals Group international projects director Michael Masterman has reportedly given some hint of a timetable for the iron ore miner’s magnetite asset spinoff. The Age carries a story claiming that Masterman indicated to an audience in Beijing that the September quarter is a probable time for a listing. The asset in question is the North Star magnetite project.

Fortescue has been talking to possible cornerstone investors over the last month or so and it’s widely expected that a listing in Hong Kong is likely. Hence, it’s also presumed that the cornerstone investors will be Chinese. It also makes sense that Masterman made the comments to a Chinese audience.

Cockatoo Coal, SK Networks

Cockatoo Coal will have to find another path to financing after watching its deal with South Korea’s SK Networks fall apart. SK said that it would not proceed with the $313 million equity placement announced on March 13 in regulatory filings, following an internal review. Cockatoo shares responded by plunging 7.3 per cent to 32 cents a pop.

However, it might not be all bad news for some shareholders. SK was set to increase its stake in Cockatoo to 40 per cent from 5.5 per cent. Given that shareholders weren’t going to see a premium for what isn’t far off a controlling stake, there were some rumblings on the register.

Plus, Cockatoo might need financing for the long term, but the company says its existing loan facility with KEBA of $150 million won’t be affected by the SK news. It means the coal company has enough money for the moment; it has time to regroup.

Asciano, BIS Industries

Might mining services company BIS Industries be destined for the market with ports and rail company Asciano reportedly walking away from the data room? The Australian Financial Review believes that Asciano decided against bidding for BIS, owned by Kohlberg Kravis Roberts, because it wasn’t a good fit. The newspaper says bankers are hoping that QR National or Toll Holdings could also be interested.

Previous reports have also indicated that KKR might be interested in floating BIS on the sharemarket. However, thanks to the Genworth Financial mood-killer, the IPO market isn’t overflowing with confidence at the moment.

Wrapping up

However, the jitters at Genworth say less about the market’s appetite for IPOs and more about the market’s appetite for Genworth. Indeed, ratings agency Moody’s has placed Genworth on review for a possible downgrade due to the suddenness of its float reversal.

Meanwhile, Ainsworth Game Technology is understood to have found strong demand for its placement. The Australian Financial Review believes the $44 million raising at $1.47 a share was three times oversubscribed.

And finally, the same newspaper also understands the relationship between Woodside Petroleum’s two lead contractors for the Pluto LNG project – WorleyParsons and America’s Foster Wheeler – is so troubled that a joint bid for the possible Pluto expansion may be axed.