Breakfast Deals: Power's Pilbara play

Fortescue will push ahead with its infrastructure sale to pay down debt, while APA Group may have to sweeten its Envestra bid.

Iron ore miner Fortescue Metals Group says it’s still working on selling a minority stake in its infrastructure despite a recovery in the iron ore price. Meanwhile, Envestra has told major shareholder APA Group it won’t engage at the current price, GrainCorp is becoming an election issue pronto and iiNet has moved on Adam Internet now that Telstra’s out of the way.

Fortescue Metals Group, The Pilbara Infrastructure

Iron ore miner Fortescue Metals Group is pushing ahead with its sale of a minority stake in its infrastructure assets, despite a turnaround in the commodity.

Fortescue chief executive Nev Power told the Diggers and Dealers conference in the great Australian town of Kalgoorlie that work is continuing on the sale of its minority stake in The Pilbara Infrastructure, which could raise an estimated $3 billion to $4 billion for the miner.

“We set that as a bit of an expectation, saying that's when we expected things might finalise and that process is continuing," said Power. 

“We're working through the people that have expressed an interest on that.”

(Just as an aside, the Diggers and Dealers people deserve congratulations for keeping the conference in Kalgoorlie, with its modest local population of 24,000, for all these years despite the size of the delegation swelling from 150 to 2400).

If the minority stake sale goes ahead, Fortescue will use the funds to pay down its $10 billion debt, which became a problem late last year when the iron ore price plunged.

Meanwhile, Fortescue is in a huff following allegations in The Australian that former Queensland-based contractor Fuel-Sys Installation had levelled claims of insolvent trading at the miner.

“Fortescue categorically denies the allegation that it has traded whilst insolvent,” said Fortescue.

“The company intends to make a formal complaint to the editor of The Australian with respect to the article and will take any and all available action against those who have made or published such ridiculous claims.”

Envestra, APA Group

APA Group boss Mick McCormack is going to have to dig deeper if he’s going to win over the independent board members of takeover target Envestra.

The Australian Competition and Consumer Commission has also opened up informal investigations into the proposed $2 billion tie-up between APA and Envestra. All in all it wasn’t a good day for McCormack’s pitch.

Envestra’s independent directors returned from their deliberations with a fairly predictable response. With an effective nil-premium offer on the table, it simply wasn’t acceptable.

When APA’s offer was first tabled back in mid-July, the implied value of the offer was about $1.07 a share against Envestra’s $1.06 closing share price. Now it’s a discount.

Analysts have speculated that APA might have to throw in some cash to secure Envestra and the share price is behaving accordingly.

APA owns 33 per cent of Envestra.

GrainCorp, Archer Daniels Midland

Speaking of the Diggers and Dealers conference, we’re two days into the federal election and already the $3 billion-plus offer for GrainCorp has a spotlight on it.

Nationals Deputy Senate Leader Fiona Nash said the takeover from US giant Archer Daniels Midland would be central to her party’s campaign.

“People are saying we need foreign investment; this is an instance where we do not need that foreign investment,” she said.

“GrainCorp has already said they are going to invest $250 million into the network, so for those people who say they are selling GrainCorp to ADM because we need foreign investment is absolute rubbish.”

Popular Nationals Senate Leader Barnaby Joyce said the party wasn’t against foreign investment, but threw some qualifiers in there.

"To say that we are against foreign investment is one of those parochial barbs that is thrown at us because it's not actually a reflection of our position,” said Joyce. 

But he added the party was "deeply concerned" by ADM's bid.

It’ll be absolutely fascinating to see how the Liberals handle this if Labor presses them on it.

Glencore Xstrata, Cargill, Joe White Maltings

And while we’re talking GrainCorp and foreign takeovers, it turns out the Australian grains handler won’t end up with Australia’s largest malt producer Joe White Maltings.

A statement from giant foreign owner Glencore International, which picked up Joe Malt through the $US6.2 billion ($6.95 billion) takeover of Canada’s Viterra, will sell the business to Cargill.

GrainCorp had been named as a possible bidder for Joe Malt, but nothing concrete emerged after that.

iiNet, Adam Internet

iiNet has swiftly snapped up South Australian internet service provider Adam Internet for $60 million after the competition regulator stood in the way of Telstra Corporation’s bid.

Two weeks ago the Telstra deal, also valued at $60 million, fell through because the telco couldn’t allay the fears of the ACCC that Adam would be used to undercut the giant’s rivals.

No such concerns with iiNet. The regulator barely batted an eyelid, having already waived the deal through.

From the moment that Telstra’s deal tripped, it was as good as certain that Adam would find another partner.

For Telstra, however, things aren’t so certain. ACCC chairman Rod Sims made some rather ominous comments about Telstra’s Adam pitch.

“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,’” said Sims.

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

Wrapping up

International investor Wellington Management has further sold down its stake in Australian Agricultural Company as it grapples with the prospect of a capital raising.

A notice to the ASX yesterday indicated that Wellington has dropped its stake to 6.5 per cent from 8.1 per cent. Before last Tuesday it was 8.1 per cent.

AACo also issued a statement yesterday refuting media speculation that the company could be broken up.

And finally, the challenge to Altamont Capital’s recapitalisation of Billabong International is still to some extent in a state of suspended animation because its chosen chief executive, Scott Olivet, hasn’t officially been put in the job yet.

Chief financial officer Peter Myers has assumed the role of acting chief executive while the Takeovers Panel considers the objections from hedge funds Centerbridge Partners and Oaktree Capital.

Word from the panel is expected in a week or so.

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