BREAKFAST DEALS: Revealing News

News Limited moves closer to clinching a deal with ConsMedia, while Bain Capital looks to be Billabong's mystery bidder.

News Limited and Consolidated Media Holdings could be on the brink of a deal, but it might be a little less than $3.50. Over to you Mr Stokes. Billabong International might have two private equity players at the table, but its share price is still trading at a discount. Elsewhere, Peabody Energy joins the coal M&A exodus, while Qantas Airways changes the game big time with its Emirates deal.

News Limited, Consolidated Media Holdings

Keep an eye on News Limited – the owner of this website – because chief executive Kim Williams is understood to be close to sealing a deal for Consolidated Media Holdings.

The Australian Financial Review reports that a deal could be announced as early as today. Further, the newspaper also says that Williams has thought about lowering his offer by a few cents.

When last we heard, News was looking at a proposal of $3.50 a share, or about $2 billion for CMH, owner of 25 per cent of Foxtel, along with a 50 per cent stake in Fox Sports Australia.

Apparently that could drop to as low as $3.45. Also, apparently, majority owner James Packer doesn’t care that much.

Now remember, Fox Sports was Nine Entertainment’s joint bidder for the rights broadcast rights with the Australian Rugby League Commission. The high price tag of that bid raised a few eyebrows, leading some to think that News might tweak its offer for CMH.

The deal, if goes through, would given News 50 per cent control of Australia’s cable TV company, with Telstra holding the other half.

Enter media billionaire Kerry Stokes. The Seven Group chairman holds 26 per cent of CMH and is the key player on which this deal hinges.

Seven is waiting for the Australian Competition and Consumer Commission to rule on whether Stokes can increase his stake in CMH.

So while we might get some news from News and CMH today, there’s some jostling to go.

Billabong International, Bain Capital, TPG Capital, CatchOfTheDay

The confidentiality agreement that Billabong International has signed with a rival bidder has amounted to precisely squat. The word is out – it’s Bain Capital.

Billabong told the market after the close that a new bidder had emerged with an offer equal to TPG Capital’s $1.45 proposal.

As Business Spectator’s Stephen Bartholomeusz points out, the fact that the offer is "indicative, non-binding and conditional” is a clear sign that another private equity player has come to the party.

While Bain might be frustrated that it’s been outed – given the repeated reports that it was circling, anonymity was always going to be difficult – the private equiteer might take some comfort from the fact that the target’s share price didn’t wholly buy into the idea that a bidding war was on.

The stock rallied 7.5 per cent to $1.37, which is still well below the $1.45 offer price that not one, but two firms have nominated.

There have also been reports linking Kohlberg Kravis Roberts to Billabong.

But these aren’t fellow retailers looking for a strategic acquisition; this is private equity. These firms have very strict parameters guiding the returns that they can shoot for.

Now, some onlookers have argued that a firm could secure Billabong for $2 a share and still secure a private equity-style return in five years. But the downward spiral in Billabong’s valuation highlights the risk associated with these predictions.

The key question that both bidders are facing is to what degree is Billabong’s core business deteriorating and what are the odds that it can be turned around, streamlined and sold for a profit?

Underlining the challenges that clothing manufactures and traditional retailers (Billabong is both) was the news from yesterday that Australia’s largest online only retailer CatchOfTheDay could consider a float of more than $600 million.

Chief executive Paul Reining made the comments to Fairfax, indicating that an IPO or sale could happen in a year or two.

To put that into context, CatchOfTheDay would have a market cap just beneath the takeover offer prices being levelled at Billabong. More impressively, it’s half the valuations of department store giants David Jones and Myer.

The Australian Financial Review reports that Billabong chief Laura Inman will sit down with TPG for a second round of management meetings next week, while Bain will get its first opportunity "around the same time”.

Peabody Energy, Wilkie Creek

US giant Peabody Energy has failed to offload the Wilkie Creek mine that it picked up from Macarthur Coal, according to Reuters.

The wire brings word from sources that the $US500 million ($489 million) sale has been put aside because talks couldn’t find a compelling offer.

Peabody Energy is large enough to hold on to assets that don’t attract a good sale price. It’s not a concern for the company.

But the news is indicative of the impact that slumping coal prices have had on the M&A market. As reported in this column yesterday (BREAKFAST DEALS: Qantas hotshot, September 6), coal perhaps the key component of the entire Australian M&A picture.

Nathan Tinkler’s $5.3 billion attempt to privatise Whitehaven Coal was easily the best example in Australia of cool coal prices derailing deals. Reuters calculates that a total of $US15 billion in coal deals have dried up thanks to weaker Chinese demand.

That China factor could also prove crucial in the sale of a 61 per cent stake in Integra Mine in New South Wales. Brazilian owner Vale was reported to have been in discussions with Chinese giant Yanzhou Coal.

Qantas Airways, Emirates

All Australian air traffic headed towards Europe has been redefined as a partnership between Australia and the Middle East.

Qantas Airways matched Virgin Australia yesterday by signing an alliance deal with Dubai-based carrier Emirates. Virgin is building its own alliance with Abu Dhabi-based Etihad Airways.

The flying kangaroo will now use Dubai as its hub to tackle Europe, rather than Singapore, although unlike the Virgin-Etihad deal, neither company will hold shares in the other.

Some concerns have been raised that Alan Joyce could be jeopardising the fruits of Qantas’s frequent flyers by linking so closely to an international aviation giant.

But as explained in this morning’s edition of The Distillery, Joyce has good reason to be confident that Qantas can maintain service standards enough to keep its frequent flyers in house.

The key hurdle for this deal is the Australian Competition and Consumer Commission.

Appropriately, on the morning that Qantas was announcing a company-changing deal, former chief executive Geoff Dixon and his friend John Singleton were popping up in the news.

The pair increased their interest in Australia pubs after forking out $12.2 million for the Sydney’s Marlborough Hotel.

Whispers have previously hinted that the pair, along with investment banker Mark Carnegie, might consider cobbling together a bid for Qantas itself.

Things have gone quiet on that front however.

Wrap up

Some Goodman Fielder investors are keeping a close eye on the trade going through, with expectations that major shareholder Wilmar International will exit its 10.1 per cent stake soon.

Yesterday, almost 30 millions shares changed hands, which is a big day for the stock. The Australian Financial Review reports that sources indicate that no big sales were handled by any individual investment bank. This points away from a Singaporean exit.

Wilmar bought its stake at 60 cents a share and will be looking at a loss with the stock trading at 53 cents a pop.

Meanwhile, Australian-listed ATM supplier GRG International is purchasing a US-based player called Triton for $US25 million ($24.6 million). GRG said the acquisition would increase its annual revenue by more than $55 million.