BREAKFAST DEALS: Respectable Elders?

Ruralco's biggest shareholder wants a merger with an indebted Elders, and Billabong faces further storms.

Ruralco’s largest shareholder likes the idea of a merger with Elders, while the latter could be facing some debt-related issues. Could some more amicable talks be forthcoming? Also this morning, shareholders in Billabong International, Echo Entertainment and Arrium are all telling us something distinct about the state of play with their companies’ deals. Elsewhere, Woolworths will also consider putting its Masters hardware properties into a spin-off deal, while Frank O’Halloran has discovered a life after QBE.

Ruralco, Elders

Ruralco’s largest shareholder has reportedly thrown support behind a $500 million merger with rival Elders, just as the latter is facing debt issues that could force them to the table.

The Australian Financial Review reports that Washing H Soul Pattinson chairman Robert Millner says he’s been "supportive” of Ruralco "pushing ahead” with a merger deal. Millner’s cousin Michael sits on the Ruralco board.

Meanwhile, The Australian understands that Elders has a significant amount of debt that needs to be refinanced by the end of the year. The newspaper also says that a number of analysts believe Elders could be forced to raise fresh capital.

While there aren’t many institutions on the Elders register to push them to engage with Ruralco as an alternative to raising capital, diluting shareholders is always a difficult task when there’s an M&A proposal to chew on.

But, keep a lid on it. None of this has played out yet and it should also be emphasised that Ruralco and Elders aren’t on the best of terms of the moment, given the events of last week.

We’ll just have to wait and see.

Billabong International, TPG Capital

Billabong shareholders could be in for a bumpy ride this week if more details about the internal dialogue of its last remaining suitor, TPG Capital, are shared with the market.

The embattled clothing company will start trading this week 1.4 per cent further back than it was when it went into a trading halt last week on the back of a report indicating that TPG was thinking of pulling its $1.45 proposal. The stock finished the session 1.4 per cent weaker at $1.06.

That’s a staggering 27 per cent discount on the theoretical offer price. To put it into perspective for M&A watchers, that’s a larger discount than the one currently being applied to Sundance Resources with its regulatory and finance challenged takeover offer from China Sichuan Hanlong Mining.

Indeed, the market appears to have seen what this column picked up on last week – Billabong International cannot counter a report that it’s only remaining suitor, TPG Capital, has considered pulling out.

It’s fair to say that the market hasn’t entirely discounted the possibility of a TPG offer materialising. But the share price is also taking more seriously the possibility of the private equiteers coming back with a lower offer following due diligence.

What’s undeniable is that Billabong is not rated by the market without a takeover bid. If TPG joins Bain Capital and walks away, the stock will fall further.

Echo Entertainment, Genting

Speaking of share price movements, Echo Entertainment finished Friday’s session in positive territory courtesy of what appears to have been an unsuccessful attempt by Genting to get back into the register to the tune of 4.2 per cent.

Echo shares rose 3.4 per cent to $3.98 after word spread that RBS was in the market for millions of shares at $3.90 a piece.

It’s widely assumed that RBS was working for the Hong Kong subsidiary of Malaysia’s Genting, controlled by gaming tycoon KT Lim.

That share price rise shows that if Lim wants the Hong Kong arm of his empire to build a position the market is demanding something better than $3.90.

With both Lim and Crown’s James Packer jostling for larger stakes in Echo, up to 25 per cent, sellers are in a strong position to hold out for a good price.

Arrium, Steelmakers Australia

And still on company shareholders, Arrium stock is giving the company’s Asian consortium suitor Steelmakers Australia a pretty clear signal that it needs to increase its $1 billion takeover offer.

The company’s shares last changed hands at 80 cents apiece, up from 75.5 cents at the beginning of Friday’s session.

More importantly, that’s a 5.6 per cent premium to the 75 cents offer price. If anything, this is at least a huge endorsement for the board in its decision not to engage with the suitors at the current price.

Indeed, Arrium chief executive Geoff Plummer has given his first public comments on the company’s decision not to speak to Steelmakers Australia, which is led by Korea’s POSCO and Hong Kong’s Noble Group.

"When the bid was made it really reflected a couple of weeks where the iron ore price had been at recent lows,” said Plummer, according to The Australian Financial Review.

"The iron ore prices have come back almost exactly $US20 since those lows and I think most people still forecast further strengthening.”

What Arrium shareholders need to also understand is that the stock is also reflecting the presence of speculators that are betting on an improved offer.

If Steelmakers Australia walks away, the price could fall a long way back towards the levels that it was trading at before the bid emerged – around 55 cents.

Woolworths

After a few speculative false starts, Woolworths has unveiled its $1.4 billion property spin-off that will generate at least $850 million for its own balance sheet.

Australia’s largest supermarket will create real estate investment trust SCA Property Group, which will encompass 69 properties valued by Cushman & Wakefield, Colliers International New Zealand and Savillis Australia at $1.4 billion.

Chief executive Grant O’Brien said the move was designed to free up capital so that Woolworths can focus on growth options. The statement from the company said that the retailer, historically speaking, doesn’t hold property assets and prefers long-term leasing agreements anyway.

The new vehicle will be created via a distribution to Woolworths shareholders and a subsequent offer to investors.

O’Brien also said that Woolworths would look at a similar proposal for the properties associated with its Masters hardware chain. But this would be a bit further down the track, given the infancy of the business.

Macmahon Holdings

The corporate regulator has been called in to investigate a hoax takeover bid for mining servicing company Macmahon Holdings.

The company went into a trading halt on Friday after learning that a number of media organisations had gotten hold of a series of emails purporting to be from directors and chief executive Ross Carroll about a Chinese joint venture takeover proposal.

Macmahon called for a trading halt due to the potential for shares to change hands on the back of the claims. The company then released a statement to the market clarifying the situation.

"After making internal inquiries the media outlet in question was advised that there was no truth to the matters referred to in the emails and that the emails themselves were false,” said the company.

"Macmahon confirms to the market that no such discussions about a possible offer have taken place.

"Macmahon has no knowledge of who created the false emails.”

The Australian Securities and Investments Commission (ASIC) is investigating the fraudulent emails. The episode stirs memories of the bogus takeover offer lobbed at David Jones by mysterious British-based EB Private Equity.

Wrapping up

The potential listing (a loaded term in today’s market) of insurance broker Steadfast Insurance next year has just got a bit more interesting with former QBE Insurance boss Frank O’Halloran signing on as chairman.

QBE has released its most recognised figure from a non-compete clause and ditched plans for him to join the board next year as a non-executive director.

Now we can only hope that equity markets settled for long enough that Steadfast can actually push ahead with a listing.

Speaking of which, the sale of Sydney’s Bankstown and Camden airports has been called off according to The Australian Financial Review. Guess what? The seller BAC Holdco that represents a group of investors, is waiting for conditions to improve.

Meanwhile, West Australian shipbuilder Austal has picked up an engineering firm in Darwin called Hydraulink NT and its associated arm KM Engineering for its HKME operations in the Territory. Austal coughed up $8 million for an 80 per cent stake, with another $2 million to come if certain benchmarks are met.

And finally, the sheer wait of cancelled deals for Alan Jones means that his program will go to air ad-free as of this morning. It’s as if he’s working for the ABC.

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