BREAKFAST DEALS: Rinehart rumble

There's plenty of action afoot in the media sector, while Rio agrees to sell its Kalahari stake.

We’ve only just entered the second month of the year and already 2012 is shaping up as the year of Gina Rinehart. Thanks to a handy deal with South Korea’s Posco over Hancock Prospecting’s Roy Hill iron ore project, Rinehart’s net worth doubled to $20 billion in January. Now in February, Rinehart is set to emerge with an almost 10 per cent stake in Fairfax Media, with eyes for almost 15 per cent and, no doubt, a board seat. Meanwhile, overnight Rio Tinto agreed to hand over its 11 per cent stake in Kalahari Minerals to China Guangdong Nuclear Power. Whether it does the same with Guangdong’s actual target, ASX-listed Extract Resources, is another issue. Elsewhere, Woolworths might have put Dick Smith on the block but the question is who wants a piece of it? And finally, APA Group is fighting back at target Hastings Diversified Utilities Fund, while former Oxiana high-flyer Owen Hegarty is apparently seeking new horizons in Canada.

Fairfax Media, Gina Rinehart

Australia’s richest person, Gina Rinehart, is purportedly seeking to increase her influence in the media by boosting her stake in Fairfax Media to almost 15 per cent. Rinehart is already sitting on 4.9 per cent of Fairfax – owner of The Sydney Morning Herald, The Age and The Australian Financial Review – but media reports indicate that could be set to rise to 14.9 per cent. Morgan Stanley has apparently been approaching fund managers offering 81 cents a share to purchase 243 million shares, or another 9 per cent of the company’s register, on behalf of Rinehart. That’s a total cost of $192 million at a 9.5 per cent premium to yesterday’s closing price.

Given that Rinehart received a board seat when she took 10 per cent of broadcaster Ten Network, it’s widely expected that she’ll be anticipating the same offer from Fairfax chairman Roger Corbett. However, media reports indicate that brokers had only secured another 5 per cent, which would leave Rinehart with a 9.9 per cent stake.

The news comes at a time of immense and, at times, strange activity in the media sector. We’re still waiting to hear officially whether Seven Group billionaire Kerry Stokes will come clean about his apparent purchase and swift sale of shares in Ten Network, for a small loss it must be said. Meanwhile, Rinehart is building a stake in Fairfax just as the publisher is looking over an information memorandum for Australian Independent Business Media, owner of Business Spectator.

Rio Tinto, China Guangdong Nuclear Power Corp, Kalahari Minerals, Extract Resources

Mining giant Rio Tinto has agreed to sell its stake in UK-listed Kalahari Minerals to suitor China Guangdong Nuclear Power Co and brought Australia’s Extract Resources very close to a downstream offer. Rio has handed over its 11.1 per cent stake in Kalahari, which gives Guangdong a 40.5 per cent share. If acceptances hit 50 per cent, Guangdong is set to deliver a $2.2 billion downstream offer to Extract Resources, which Kalahari has a 43 per cent interest in.

The question now is whether Rio will hand over its 14 per cent stake in Extract if Guangdong wins Kalahari? The real target is the Husab uranium project in Namibia, thought to be one of the largest in the world. Rio has some nearby assets that are maturing and one theory is that they will be somehow involved in any deal with Guangdong. Rio simply said in its statement that it would decide whether to accept an offer for Extract "in due course”. This isn’t necessarily Rio playing funny buggers; there’s little point committing to a takeover offer that doesn’t exist yet.

Woolworths, Dick Smith

Woolworths chief executive Grant O’Brien has boldly decided to cut loose the underperforming Dick Smith Electronics chain by closing 100 stores across Australia and New Zealand and selling the rest. The supermarket giant said it has received a number of unsolicited offers for Dick Smith, something that up until now only mere whispers have pointed to.

So who’s going to buy it? Dick Smith himself says he fears it’ll be an overseas buyer, which isn’t too far from the mark according to a number of analysts. A logical local player is hard to identify, without any help from Woolworths. Harvey Norman could be an option, although it has one of the most shorted stocks on the ASX so it’d be preferable for a purchase to come from money in the bank. JB Hi-Fi is a relatively close cousin, but the electronics retailer is battling its own growth problems.

One point that hasn’t been lost is whether Woolworths, which now plans to channel its consumer electronics through its Big W stores, will still provide Dick Smith with its higher-margin supply chain.

APA Group, Hastings Diversified Utilities Fund

APA chief executive Mick McCormack has come out swinging against target Hastings Diversified Utilities Fund, after the it rejected APA’s $1.8 billion takeover offer as low-ball and too conditional to justify an independent expert report. That second issue has irked McCormack and now the APA boss has responded, saying that suggestions APA wouldn’t be able to refinance its debt were wrong.

APA has offered 50 cents cash and 0.326 APA shares for every HDF share it doesn’t already own. If the company succeeds, APA will secure control of the domestic gas pipelines on Australia’s east coast. However, with the boards so far apart from each other, concessions on one side or the other will need to be made.

MSF Sugar, Mitr Phol

Things aren’t so sweet for Thailand’s Mitr Phol. The company’s progress towards winning Maryborough Sugar Factory with a unanimously recommended $309 million takeover offer has been surprisingly slow, with its 22 per cent stake as of December 8 growing to just 32 per cent today. That being said there has been some movement in the last few days and we might have found out why.

The Australian Financial Review has gotten word from the market that some institutional shareholders had quietly encouraged MSF underwriter UBS to have a sniff around for a rival bidder. The theory goes that shareholders were holding out. However the newspaper says there hasn’t been any appetite, which is hardly surprising. Thirty-two per cent is hardly a controlling stake, but it’s certainly a blocking stake if a suitor wants a bid conditional on getting 75 per cent of the register – a fairly modest goal.

Lynas Corp

Rare earths miner Lynas Corp has received a not-so-rare bit of news – its temporary licence for a refinery in Malaysia is still up in the air. Lynas was expecting to get word from the Malaysian Atomic Energy Licencing Board yesterday about a temporary licence for its $200 million rare earths processing plant, but by late afternoon it was forced to tell the market they’d received no notice.

A week ago Lynas shares were full of zeal, having surged 26 per cent in four sessions leading up to the funding deal with Mount Kellett Capital Management. Now the company is warning Malaysia’s political classes, which are uneasy about the plant due to local community environment and health concerns, not to deny them the all-important operating licence, unless they want to threaten foreign direct investment risk assumptions.

Tigers Realm Minerals

Owen Hegarty was burned last year by the domestic float of his company Tigers Realm Coal, raising $45 million last year from an IPO that was once hoped to generate up to $300 million. But it appears the former Oxiana big fish wasn’t feeling sorry for himself over the Christmas break. The Australian Financial Review has heard word from sources that Hegarty’s Tiger Realm Minerals, which boasts a uranium project in Canada’s resource-rich region of Saskatchewan, might be floated on the Toronto Stock Exchange. The asset is a stone’s throw away from Hathor Exploration, which was recently acquired by Rio Tinto for a handsome sum.

Wrap up

Slater & Gordon managing director Andrew Grech says picking up Russell Jones & Walker is a once in a decade opportunity, The Australian Financial Review reports. Recent regulatory changes in Britain preventing claims management companies from charging referral fees have made UK firms much more attractive to outsiders and while the takeover is still reliant on Slater & Gordon winning a licence, the locals remain confident.

In telecommunications, TPG Telecom has consistently been the subject of speculation pointing to a takeover of iiNet. The former, of course, recently snapped up Internode for $105 million, but the presence of TPG on the register of iiNet with 7.24 per cent will ensure takeover talk never really ends. Fairfax reports that Macquarie Equities analyst Andrew Levy believes a tilt at iiNet is not on the cards; it’s simply that TPG is building a strategic stake, possibly for a block.

Speaking of Macquarie, the silver donut’s Macquarie Capital arm has been taken on by Canada’s NiMin Energy Corp to give it some strategic options, including a potential sale.

Meanwhile, Fletcher Building’s Formica has agreed to take up the remaining 50 per cent of Europe’s Homapal Plattenwerk, a laminates maker, for €30 million ($37.1 million), while lawyers at Middletons played a role in the $375 million sale of Ascent Pharmahealth to Watson Pharmaceuticals, acting on behalf of sellers.

Finally in resources, US giant General Electric has won a $US1 billion ($940 million) contract for equipment and services on the $30 billion Ichthus LNG project off the Kimberley coast. And Southern Gold shares got an enormous boost after fellow Kalgoorlie resident Integra Mining picked up a 10 per cent stake in the company for $1.35 million.

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