BREAKFAST DEALS: Qantas clashes

Qantas agitators are sounding out support for a new sell-off plan, while News may take a look at The Sunday Times.

Qantas Airways chief executive Alan Joyce will probably be making a few phone calls to investors and unions in the near-term as antagonists talk up alternative proposals to extract some value. GrainCorp chief Alison Watkins is sticking with the line that suitor Archer Daniels Midland hasn’t thrown in enough to win the board’s interest. Meanwhile, News Limited is reportedly thinking about the future of Perth's Sunday Times in Perth, while two small deals bring a certain amount of intrigue.

Qantas Airways

The Qantas Airways agitators are at it again just as chief executive Alan Joyce wins a symbolic victory for management’s turnaround strategy.

In this morning’s edition of The Australian Financial Review, it’s claimed that former Qantas chief financial officer Peter Gregg and investment banker Mark Carnegie have been talking to "key investors and unions” about an alternative strategy to unlock value for the airline.

The newspaper understands that the pair are focusing on a sale of the Qantas Frequent Flyer business and a partial float of Jetstar.

Followers of the Qantas speculation won’t be too surprised. Gregg and Carnegie are names that have popped up along with advertising kingpin John Singleton and former Qantas boss Geoff Dixon in relation to similar rival proposals.

The timing is intriguing, given that Qantas announced a $100 million share buyback on Thursday. While that’s pretty modest for a company with a $2.8 billion market cap, it’s an unmistakable signal to the register from management: ‘We believe we’re undervalued’.

At the moment Qantas is at the mercy of the Australian Competition and Consumer Commission over its proposed 10-year alliance with Middle Eastern carrier Emirates.

This plan is central to Joyce’s turnaround strategy and you get the feeling that once he gets that bedded down, it’ll become more difficult for any antagonists to convince a good slice of the register to opt for another plan. By that stage, Qantas will be committed to the Joyce vision.

The AFR indicates that the pair aren’t so much unmoved by the Emirates deal, but doubt how lucrative it’ll be for Qantas.

For shareholders believing that selling profitable businesses now to unlock value is the right course of action, consider the dynamics between Qantas and rival Virgin Australia.

The latter, under the control of former Qantas executive John Borghetti, has completely changed the nature of Australian aviation with a series of alliances and structural reforms to allow greater levels of foreign investment in its international arm.

The thing about the Emirates proposal is that it’s not so much about securing a windfall of cash, but turning a loss-making international arm into a break-even business.

GrainCorp, Archer Daniels Midland

GrainCorp chief executive Alison Watkins was on message over the weekend when asked about the company’s growth potential following a rejected takeover offer.

Watkins was speaking to ABC TV’s Inside Business program, where she used similar language that the company used last week when it formally rejected a $2.7 billion takeover from American grain giant Archer Daniels Midlands.

"We’ve had a good hard look at the ADM proposal and we've given it very serious consideration…And we're very confident that the proposal materially undervalues GrainCorp." said Watkins.

GrainCorp has been out on the front foot in this battle, with a great deal of clarity around its improving results.

ADM already has its foot on 14.9 per cent of the register, but is apparently not seeking to "engage” with the GrainCorp board. As yet, all we’ve heard from the suitor is that it still believes the current offer offers compelling value.

The shareholders look pretty unconvinced by that argument at the moment. The stock is still hovering around $12.20, a sizeable premium to the $11.75 cash proposal that ADM produced.

ADM would still need the approval of the Australian Foreign Investment and Review Board. The noises from Canberra concerning the Qantas deal have been generally pretty positive, putting pressure on the regulators to approve the Emirates tie-up. GrainCorp is very different story.

But if that hurdle is a bit further down the track. For the moment, all ADM can do is bide its time and hope the agribusiness sector turns against GrainCorp at some stage.

The consensus is that this plan would take quite a while to play out.

News Limited, The Sunday Times

The takeaway from the sale of Consolidate Media Holdings to News Limited, the owner of this website, was that the Australian arm of Rupert Murdoch’s media empire would have a hard time buying anything else big on competition grounds.

Such is the way with the Australian media sector it appears News could have trouble offloading assets as well.

The Australian Financial Review believes News chief executive Kim Williams has "sought an informal assessment” from the ACCC for the potential sale of Perth’s The Sunday Times.

The newspaper indicates the ACCC is initially concerned about the idea of Seven Group Holdings billionaire Kerry Stokes picking up the asset, because he already has a hand on The West Australian.

Seven chief executive Peter Gammell talked down the idea of his company taking The Sunday Times off News’ hands.

It would be an interesting exchange of assets. News beats Seven out of Consolidated Media Holdings, for which Stokes receives just under $500 million. Then, Seven spends some of that cash on a News asset.

But at the moment, all we’re talking about is News and the ACCC having a chat.

Globe, Mariner Corporation, Rey Resources, ASF Group

Two small takeover plays are getting a bit of attention from the market.

The first is the opportunistic move by Mariner Corporation on troubled youth fashion retailer Globe, with a $19.7 million all-scrip bid.

The clothing company has advised shareholders to take no action in relation to the move, having had some recent boardroom issues.

Retail billionaire Solomon Lew has his hand on 5.9 per cent of the register, but founder Matthew Hill holds the majority of the company together with his two brothers Peter and Stephen. Combined, the trio owns 67.8 per cent of the company.

Meanwhile, a subsidiary of China’s ASF Group has followed up its recent move on the Rey Resources register via a $13.8 million placement with requests to have two independent board members removed. The request raises concerns that ASF is out for effective control without a premium.

ASF Canning Basin Energy already has two nominees on the eight-person Rey Resources board and 23 per cent of the register. If that falls to six, the influence that ASF commands over the $34 million company would increase simply by fractions.

Wrapping up

Australian retail giant Woolworths looks destined for another encounter with the ACCC after securing the a commercial refrigeration company from the Hastie Group receivers.

According to The Australian Financial Review, the ACCC is making inquiries into the matter, with chairman Rod Sims indicating that they’re trying to establish how many players there are and whether of Woolies purchase would diminish competition.

And the same newspaper reports Cricket Australia is reaching out to investment banks for proposals on its television rights, as exclusive talks with long-time broadcaster Nine Entertainment come to an end.

Seven Network and Ten Network are reportedly interested in pinching the rights off Nine if the opportunity arises. But reports so far have pointed to a confidence within Nine that the gentlemen’s game will stay at home.

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