BREAKFAST DEALS: QBE stockpile

QBE Insurance is called upon to consider a capital raising, while APA looks like emerging as victor in the battle for Hastings.

QBE Insurance might be planning for some acquisitions, but chief executive John Neal has been urged to raise capital. However, it’s a single analyst making the call, not a herd like the one that hounded Seven West Media to do the same. Meanwhile, APA Group looks to have won Hastings Diversified Utilities Fund with its rival bidder seemingly running out of puff. Elsewhere, ClearView Wealth has been officially told shareholders to reject an offer from Crescent Capital Partners, Biota’s deal with Nabi Pharmaceuticals has hit trouble in Maryland and Yancoal Australia has received some shelter from its Chinese parent.

QBE Insurance

QBE Insurance has become the latest nominee for a capital raising – up to $750 million of it. The nominator is CLSA analyst Jan van der Schlak.

To be clear, Schlak says it probably won’t happen. But the analyst told clients in a note that the benefits for Australia’s largest insurer would be a better balance sheet, greater reserves and additional investment returns.

"(Chief executive) John Neal is somewhere between a rock and a hard place: he realises QBE needs to increase margins, yet to increase margins he needs to increase prices and when he increases prices he loses income,” van der Schalk said, according to media reports.

Too right Neal is in a tight spot. QBE is looking towards acquisitions for growth – granted, not with the same zeal as under former boss Frank O’Halloran.

Yet, here’s an analyst saying that the insurer would benefit from extra capital.

The situation is reminiscent of Seven West Media a few months ago. Billionaire Kerry Stokes is reserving the right to take on News Limited in the race for Consolidated Media Holdings. But Seven West needed a better balance sheet.

Seven West went for a $440 million capital raising. The crucial difference is the media company had every man and his dog, cat, goldfish and jabberwocky calling for more capital.

QBE isn’t under nearly that much pressure.

Hastings Diversified Utilities Fund, APA Group, Pipeline Partners Australia

Signs are now pointing to an APA Group victory in the battle for Hastings Diversified Utilities Fund.

A source close to the PPA – a joint venture between Utilities Trust of Australia (a fund managed by HDF’s manager Hastings Funds Management) and a Canadian pension fund – has backed up a statement from the bidder that it won’t match APA’s improved $1.4 billion offer in a report by The Australian.

PPA told the market quite bluntly yesterday that it has "no intention of exercising its matching right,” which expires at midnight.

But that simply means that the target’s board will recommend APA’s offer. Theoretically, PPA could increase its bid any time before it expires at the end of this month, but the source indicates this isn’t likely to happen.

But for that to happen, it would no longer be matching APA’s offer. It would have to exceed it to secure HDF’s recommendation. It’d be silly to let that happen.

Breakfast Deals doesn’t like to say the word ‘never,’ but it really looks like APA has won.

It’s worth considering the debate that sparked when PPA first entered the bidding contest.

Because Hastings Funds Management oversees both the target HDF and joint PPA bidder Utilities Trust of Australia, there was an impression that the manager was propping up a dummy bid of sorts.

You’d have to admit that if that was the case, coaxing two improved offers out of APA with a recommendation from the board means that Hastings Funds Management has some courage.

ClearView Wealth Management, Crescent Capital Partners

As expected, ClearView Wealth Management has encouraged shareholder to reject a $218 million takeover from Crescent Capital Partners.

The writing has been on the wall since signals emerged from near-majority owner Guinness Peat Group that it wasn’t impressed with the 50 cents a share offer.

Earlier reports indicating that ClearView wouldn’t officially turn its nose up at CCP Bid Co, a Crescent Capital subsidiary, until its results were released turned out to be right on the money.

Reported net profit surged 158 per cent to $22.3 million, largely because of a reduction in its life insurance contract liability. The measure that the board watches is underlying profit, which was flat thanks largely to market conditions.

The board says in the target’s statement that the offer is "inadequate and substantially undervalues” ClearView. Independent expert KPMG agrees that the offer just doesn’t stack up.

A quick glance at the charts shows they might have a point. ClearView consistently traded around 45 cents a share in the lead up to the months leading up to the takeover offer, which dropped in mid-July.

Since then, the stock has responded to the signs from the insurer that it will hold out for a better offer. The stock finished yesterday’s session at 59 cents a pop. That’s a whopping 18 per cent premium to the offer price.

Given that GPG hasn’t officially committed to rejecting the offer, speculators must be pretty confident.

It’s not that the 59-cent valuation is out of line, a typical takeover premium delivers an extra 25-30 per cent to the target’s shareholders.

The question is whether ClearView can coax that value out of Crescent Capital, or whether the opportunists will shrug their shoulders and go elsewhere.

Emerald Partners and JPMorgan are advising ClearView, with Baker & Mackenzie taking care of the legal side of things.

Biota Holdings, Nabi Biopharmaceuticals

Biota Holdings chief executive Peter Cook has done his best to sell his company’s takeover of Nabi Pharmaceuticals, as one of the target’s shareholders urges its comrades to reject the deal.

In an interview with openbriefing.com that was released to the market, Cook said the company considered a straight up sale or merger to a US company.

"We also looked at an initial public offering on either the NASDAQ or the New York Stock Exchange, but primarily due to cost and timing we considered all of these alternatives were inferior to the proposed merger with Nabi given its residual cash and its shareholder base,” said Cook.

From the start, Biota is effectively opting for a backdoor listing as Nabi is little more than a pile of money left over from some unsuccessful thrusts at the US pharmaceutical industry.

But, understandably, some Nabi shareholders might be more interested in a liquidation of the assets rather than delivering a backdoor listing to some labs from Down Under.

Maryland-based US hedge fund Mangrove Partners is voicing such concerns, mounting a campaign to get Nabi shareholders to reject the proposal.

Mangrove sent a letter to shareholder last week saying the deal is "ill-advised and value-destroying”.

Wrapping up

Yancoal Australia’s decision to merge with Gloucester Coal rather than chance its arm with an ASX float has turned out to be a good decision. The coal price has steadily retreated since Yancoal announced its plans.

As if to underline this, according to The Australian Yancoal announced yesterday that Bank of China and China Construction Bank extended the maturity on its debt by five years to 2017-19.

The newspaper says this effectively shifts $900 million in non-current liabilities. On top of that, Yancoal’s parent company Yanzhou Coal has provided $US720 million ($690.9 million) in loans.

In other resources news, iron ore junior BC Iron spiked savagely in mid-morning trade yesterday but quickly retreated amidst the announcement of a strategic alliance with ASX-listed Cleveland Mining Company.

The latter has gone into a trading halt until tomorrow, pending the announcement of a share placement, with BC saying that the pair will form an acquisition-driven joint venture focused on Brazil.

Meanwhile, The Australian understands that another iron ore hopeful called Winmar Resources is poised to reveal an increase in its resource base sometime today.

The backed of Winmar include Fortescue Metals Group’s Andrew Forrest, the Member for Wentworth Malcolm Turnbull and former NSW premier Nick Wran.

In aviation, Middle-Eastern carrier Etihad Airways is making good on its promise to keep increasing its stake in Virgin Australia.

A notice to the ASX yesterday revealed that Etihad has spent over $10 million to increase its stake in the Australian carrier to 6.1 per cent from 5.01 per cent.

Etihad has approval from the Foreign Investment Review Board to take the stake to 10 per cent.

And finally, health insurer NIB Holdings says is on the hunt for acquisitions after the release of its results yesterday, saying it has some "good investment prospects”.

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