BREAKFAST DEALS: Pricey Primus
M2 Telecom secures Primus in more NBN-inspired consolidation, while a mystery shareholder holds up Flinders Mines' Russian deal.
M2 Telecom, Primus Australia
Specialised small business telco M2 Telecom has picked up Primus Australia from its parent company for $192.4 million. It took five months of negotiations for M2 chief executive Geoff Horth to secure what has been a dream of his since the middle of last year. Primus Telecommunications Group International flagged the possible sale last October, so the timing has been pretty good. The deal will give M2 165,000 customers and some crucial infrastructure, including its first data centres, one in Sydney and one in Melbourne.
While the extra scale is an essential element with the national broadband network fast approaching, it comes at a cost. M2 is planning to raise $83.1 million through a renounceable entitlement offer in order to pay for Primus. Some onlookers have questioned whether M2 is overpaying, given that the five-times EBITDA is about 60 per cent more expensive than some comparable deals.
Telstra will be the largest fish in the NBN-pond, though not all is well after sealing the $11 billion deal with the government. Telstra has flagged the need for job cuts if it doesn’t secure contracts to help construct the NBN because it won’t need as many workers to service its copper network as it’s gradually decommissioned. Huawei Australia has been effectively banned from the contract process so far, so that’s one less competitor for Telstra.
Speaking of our broadband network, NBN Co has been accused of putting $660 million of taxpayer funds at unnecessary risk by not securing a parking spot for two satellites. NBN Co has the money for the satellites, but there is a finite number of spots available in the stratosphere for them to sit. Australian satellite service provider NewSat has pushed the federal government to rent its satellites, an option that hasn’t been taken up.
All this was the subject of yet another tense encounter between opposition communications spokesperson Malcolm Turnbull and NBN Co chief executive Mike Quigley. One wonders how their relationship could continue if Tony Abbott becomes Australia’s next prime minister.
Flinders Mines, Magnitogorsk Iron & Steel
Flinders Mines is still in limbo after a court in Russia rejected an attempt by its suitor, Magnitogorsk Iron & Steel (MMK), from having an injunction against its takeover thrown out. Flinders is currently the subject of a $554 million takeover by MMK, which is being held up by Elena Egorova, a mysterious minor MMK shareholder that’s objecting to the deal. Flinders says it has engaged its own legal counsel in Russia to run objections alongside MMK – best of luck to them.
Flinders says the best it can hope for at the moment would be a judgement by July 21, with an appeals court to hear arguments at the end of this month. That’s some tough news for a market that thought the MMK deal would be a lock, particularly with no rival bidders in the wings. Unsurprisingly, Flinders shares plunged 18 per cent.
Whitehaven Coal, Aston Resources
Shareholders voted overwhelmingly in favour of the $5.1 billion takeover of Nathan Tinkler’s Aston Resources by Whitehaven Coal. Though Tinkler had a lot personally riding on the deal getting up, with personal debts reportedly in the hundreds of millions, he left it to deputy chairman Mark Vaile to handle the proceedings. Apparently, Tinkler is away on business, possibly in Hong Kong.
His presence was not sorely missed, with 99.9 per cent of shares voted in favour of the proposal. Shareholders also gave the go-ahead to his private company Boardwalk Resources being spun into the deal, in a transaction worth up to $491 million. Now the deal will go before the Federal Court of Australia for final legal approval during a hearing expected on April 18. After that, Whitehaven Coal-Aston will be Australia’s largest independent coal producer.
That is, until Yancoal Australia of China’s Yanzhou Coal seals its deal with Gloucester Coal, which will be worth about $8 billion.
Investors hoping for news of the planned Genworth Australia float could be sated within a fortnight. The Australian Financial Review understands that the company’s American parent, Genworth Financial, will make a decision in the next two weeks about whether to brief analysts of the joint lead managers – CommSec, Macquarie, Goldman Sachs and UBS – and push the $800 million float forward.
Genworth tentatively slated the float for the first half of this year and June 30 isn’t that far away. While Genworth isn’t the biggest float planned for the year, TRUenergy is much bigger, it’s the first major one set this year.
Brisbane’s Linc Energy had a brilliant start to the week by signing a joint venture with a subsidiary of Hong Kong-listed Golden Concord Holdings (GCH) to produce gas in China. The announcement sent the stock up 19 per cent. Linc will take a 33 per cent stake in the joint venture and provide its underground coal gasification (UGC) and gas-to-liquids technology, while GCH takes the rest as well as a direct stake in Linc itself of 5 per cent.
Linc chief executive Peter Bond says the company has been hoping to secure a partner for many months. He will have a wait a little longer before the union becomes official. The Foreign Investment Review Board still needs to give the green light.
Kohlberg Kravis Roberts, BIS Industries, Rio Tinto
Kohlberg Kravis Roberts Australia boss Justin Reizes says the premature disclosure of deals to the market has been a major disincentive for the private equity giant in this market. Reizes made the comments to The Australian Financial Review amid reports that it’s hoping to nab the diamond businesses of BHP Billiton and Rio Tinto, as well as engaging in long talks with Pacific Brands about an offer. The same newspaper also reports separately that KKR appears to be seriously considering an initial public offering for its mining services business BIS Industries.
While we’ve made mention of Rio Tinto, the deal that the mining giant has made with the London Olympics to make the medals the (successful) athletes will receive has generated some unflattering publicity. A handful of human rights groups and environmental protection bodies have united to highlight what they believe are the worst sponsors of the Olympic Games and, unfortunately, Rio has been named.
Some historic goldfields in the possession of Castlemaine Goldfields could switch to Singaporean ownership with Liongold Corporation putting a scrip deal on the table. Castlemaine has been valued at $55 million from the two-for-nine scrip offer from Liongold. Castlemaine owns some fields around Ballarat that it picked up from Lihir Gold, before it became part of Newcrest Mining.
In banking, National Australia Bank has now officially watched the most likely bidder for its UK assets walk out the door. NBNK Investments had already leant again on a bid for over 600 branches from Lloyds Banking Group, now it has properly walked away from NAB’s strategic review of Clydesdale Bank and Yorkshire Bank. Price was no doubt a point of difference. Better news for Westpac Banking Corp, which has just secured a branch licence in India and will ramp up its commercial and wholesale businesses in the region accordingly.
And finally, previous reports have indicated that CSL is looking for a major international acquisition. Now, Goldman Sachs estimates that the medical products company has at least $1 billion to spend on such an acquisition – that would be major.