Breakfast Deals: Perpetual prized

A share price bounce and a helpful independent report from Ernst & Young have made Perpetual firm favourite to win The Trust Company over rival bidder Equity Trustees. Meanwhile, Adam Internet probably won’t have to wait long before a suitor takes Telstra’s place, Billabong International has pressed the ‘go’ button on its Altamont deal and Fortescue Metals Group’s perceived need to sell a minority stake in its infrastructure has eased after yesterday’s production report.

The Trust Company, Perpetual, Equity Trustees

The Trust Company has thrown its support behind the takeover offer from Perpetual after an independent analysis from Ernst & Young found greater benefits in its offer as opposed to a rival proposal from Equity Trustees.

E&Y found that Perpetual’s bid would result in annual cost savings of $14 million. Perpetual has estimated cost savings of $15 million, so the big player is being rather conservative.

EQT on the other hand is being bold. It kind of has to be. While it’s expecting synergies of at least $11 million, perhaps as much as $15 million, E&Y could only support about $7.5 million.

TTC has requested more time to assess the revised offer from EQT lodged on June 21, but the board still believes in the Perpetual offer.

For a moment late last month a slide in Perpetual’s share price meant that EQT’s value equation was comparable, if not greater. This situation has reversed.

In horse racing terms, Perpetual is finishing strong a few lengths ahead and punters are expecting EQT to fade in the final furlong.

Adam Internet, Telstra Corporation

Australian Competition and Consumer Commission chairman Rod Sims has offered some ominous warnings for Telstra Corporation after its $60 million bid for Adam Internet fell apart.

“There was a time when they said, ‘This is a small transaction, why do you care?’ And the answer is, ‘It’s small, but you’re only doing it to turn it into something huge,’” Sims told The Australian Financial Review.

“But if we can’t deal with it [under existing legislation] then we may need to go to government to get it dealt with.”

With a bitter federal election looming, it’s quite a thing for Sims to be speaking on behalf of the government. Given that Telstra is probably the largest competition issue in the country thanks to its awesome power and the rollout of the national broadband network, perhaps Sims has gauged what the Coalition would have in mind if it assumes office.

While Telstra is out of the race for Adam Internet, the hunt is likely to continue.

TPG Telecom, iiNet and M2 Telecommunications would all make sense as suitors for Adam Internet. Indeed it’s believed that some players were sitting on the sidelines to wait and see what the consumer watchdog said.

Now they’ve got a free run.

Billabong International, Altamont Capital Partners

Billabong International has been able to proceed with its Altamont Capital Partners deal, effectively putting an end to the very late run from US hedge funds Centerbridge Partners and Oaktree Capital.

The embattled surfwear company said yesterday that it has drawn down a $325 million bridge loan facility from Altamont, using it to repay its lenders.

Centerbridge and Oaktree picked up the debt from Billabong’s syndicate lenders at a discount and will be repaid in full. But that wasn’t their primary aim.

The pair was trying to use the debt for an equity swap to secure control of Billabong, but was left unfulfilled. Billabong gave them both several chances to put their case forward.

Now Altamont is in the driving seat and, depending on how the relationship goes, could end up with just over 40 per cent of the iconic Australian company.

Fortescue Metals Group, The Pilbara Infrastructure

As flagged yesterday, Fortescue Metals Group has delivered a production report that’s not spellbinding on its own, but it does show that pressure on the iron ore miner to sell a minority stake in its infrastructure has lifted.

Andrew Forrest’s ‘third force’ in iron ore is now producing at costs where it could sustain a price drop like the one in September last year.

And the longer the iron ore price remains comfortably about, say, $US120 a tonne, the less Fortescue has to care about freeing up funds from The Pilbara Infrastructure.

Wrapping up

Commonwealth Bank of Australia is reportedly “gaining momentum” in its quest to offload its listed real estate exposures, with the independent directors of its three property trusts all approached about taking management in-house.

The Australian Financial Review reports that the independent directors of the arms, which are managed by CBA’s Colonial First State Global Asset Management, are under no obligation to disclose the talks.

Speaking of banks, The Australian reports that Lloyds Banking Group is having a look at selling its Australian asset finance and commercial lending units. At least, that’s what sources have told the newspaper.

In aviation, Qantas Airways has signed a three-year fly-in, fly-out agreement with Gina Rinehart’s Roy Hill iron ore project that will commence on August 13.

Apart from being a boost for Qantas, this is also another bullish sign for Rinehart and her efforts to get the financing for the project in place.

And finally, toy company Funtastic is raising $15 million from shareholders as it finalises the acquisition of Slushy Magic and Chill Factor.