BREAKFAST DEALS: Rio and BHP's buy-ways

With BHP Billiton and Rio Tinto on track to post record high earnings Deutsche Bank expects the mining giants to announce a combined $US10 billion of share buybacks, while the rumours of a BHP-Anadarko tie-up refuse to die down. Meanwhile, it's out with the old and in with the new at Asciano with Mark Rowsthorn shown the door; Myer's $42.25 million sass & bide acquisition fails to impress investors and another merger in the busy gold sector. Elsewhere, a night of heavyweight deals on Wall Street with the AOL-Huffington Post merger garnering a lot of attention.  

BHP Billiton, Rio Tinto

Mining giants BHP Billiton and Rio Tinto both look on track to post record high earnings this month and it looks like there might be some good news there for those shareholders pushing the miners to hand some cash back to them. With rivers of cash flowing into their coffers and M&A prospects looking pretty tight a share buyback of some description has always been on the cards, but it's the size of the buyback that has been subject to speculation. On that front Deutsche Bank analysts have taken a stab at a figure, saying that the miners are set to announce a combined $US10 billion of share buybacks when they roll out their impressive profits. According to The Australian, Deutsche Bank analyst Paul Young expects BHP and Rio to each announce a $5 billion buyback. Capital management is expected to be a common theme this earnings season, especially for miners. While Rio has previously played down the prospect of buybacks as its preferred use for excess cash, the simple fact is that it has too much money – more than enough to fund its projected capital expenditure and make the Riversdale Mining acquisition. The same goes for BHP Billiton which wants to spend more on capex but has few M&A avenues. The Australian adds that both miners will probably target their London-listed stocks for the buybacks, given the fact that they trade at a 15 to 20 per cent discount to the ASX -listed ones.

BHP Billiton, Anadarko Petroleum  

With regards to BHP and its M&A options, the market refuses to call it quits on the prospect of a tie-up between the miner and US-based oil company Anadarko Petroleum. According to The Australian Financial Review, there is talk that both parties have made contact about a potential deal. The speculation centres on the role that BHP's non-executive director Alan Boeckman, who is also the chairman of US engineering group Fluor, could play as a conduit between the miner and its target. Anadarko's chairman James Hackett is also on Fluor's board along with two other directors and there is a feeling that if anyone could organise a friendly chat between BHP and Anadarko it's Boeckman.

Asciano Group

Asciano Group's shareholders were surprised by the sudden change at the top at the rail and ports operator yesterday and many are evidently hoping that the departure of Mark Rowsthorn could be a sign that things are about to change for good at the business. After a four-year stint at Asciano Rowsthorn has been shown the door – and there is speculation that his abrupt departure may be a result of growing acrimony between him and Asciano chairman Malcolm Broomhead. Broomhead understandably played down talk of any argy bargy but did say that the time was right for a succession and the company needed a new style of leader. That leader is John Mullen, who seems to have the right credentials for the job. Mullen was the boss of global logistics giant DHL until 2009 and has been on the high profile boards of Brambles, Macquarie Airport (MAP) and Telstra. He is stepping down as a director from Brambles and MAP but will hold on to its position at Telstra. Back to Rowsthorn, his dethroning certainly does remove the last vestiges of the original team that oversaw Asciano's spin-off from Toll Holdings in 2007. Asciano immediately ran into debt troubles after listing and while Rowsthorn managed to salvage the situation through a $2.35 billion equity raising in June 2009, the sale of shares at a deep discount was not welcomed by many. The other sore point for shareholders was the extent of the salary and bonuses pocketed by Rowsthorn. Asciano is yet to report a profit but Rowsthorn has collected a handy $4 million in cash bonuses over the last four years. Rowsthorn, who still holds 113 million shares in Asciano, will stick around until June and the market will no doubt keep an eye not just on what he intends to do with that stake once he leaves Asciano but also on where he is headed. One obvious destination is Toll Holdings, where Rowsthorn has been touted as a potential candidate for outgoing boss Paul Little. Little's tenure end in 2012 and Rowsthorn certainly has the pedigree to run the business. However, Little is expected to hang around for a while at Toll and there is talk that the two don't see eye to eye. Another area of focus is what the change at Asciano means for the group's port operations. Rowsthorn was reluctant to part with the Patrick port asset even at the height of Asciano's debt woes but investors are wondering if Broomhead and Mullen will be quite so attached. With Asciano expected to increase its focus on its coal haulage business the port operations could probably be flogged at a healthy premium to interested parties. Mullen has promised that he will press as many palms as possible once he comes on board and the sale of the port business will no doubt be on the agenda.  

Myer Holdings, sass & bide, David Jones

Myer Holdings' shares took a hefty tumble as investors baulked at the prospect of a five per cent drop in the retailer's 2011 earnings but that didn't stop Myer boss Bernie Brookes from unveiling his latest gambit in making life difficult for rival David Jones. Brookes confirmed that Myer had paid $42.25 million to pick up a 65 per cent stake in fashion label sass & bide, which had until now been one of the anchor labels for David Jones. The $42.25 million price tag is considerably less than the $70 million mark which was doing the rounds and with sass & bide boosting its sales by more than 50 per cent in the past two years the move could highlight new windows of opportunity for Myer. There is talk that Myer has made overtures to other brands and that's probably not going to change anytime soon. However, Myer and Brookes face the much tougher challenge of convincing the market that the retailer can weather tough market conditions and the growing negative sentiment towards where it is headed. Meanwhile, David Jones threw in a few punches of its own with boss Paul Zahra saying that it was not in the business of acquiring brands simply to secure distribution and hinted that Myer has probably paid too much for the label, which contributes around 0.5 per cent of David Jones' sales. David Jones has end its supply arrangement with sass & bide. Myer was advised by Flagstaff Partners and Clayton Utz, while sass & bide's now millionaire founders – Sarah-Jane Clarke and Heidi Middleton – were advised by KPMG Corporate Finance and Arnold Bloch Leibler.

Whitehaven Coal, Westgold Resources, Aragon Resources, Jupiter Mines

Whitehaven Coal's shareholders probably face a lengthy wait as the coal miner sorts through its short list of bidders. Whitehaven has informed the market that it has received a number of non-binding indicative proposals, with selected parties invited to complete detailed due diligence and submit binding proposals. This process is expected to take several months and given the fact that Chinese parties Shenhua Group, Yanzhou Coal Mining and China Coal are all seen as likely suitors the whole process may drag on even further. There is talk that Whitehaven has been seeking bids of at least $7.50 per share, valuing it at around $3.7 billion. That price seems to have been a bit rich for some suitors and if US coal giant Peabody has indeed dropped out of the race then the miner looks destined for Chinese hands. However, there's always a chance that the shortlist will contain a bid from a consortium of interested parties. The thing about that is that Beijing usually allows only one entity to make its pitch for a foreign entity, so sorting out the paperwork to see who gets the gig will take time and that could mean a lengthy deal. Meanwhile, the ever active gold sector has thrown up another deal with Westgold Resources announcing a $76 million scrip offer for Aragon Resources. Westgold – which already holds a 20 per cent stake in the target – is offering one of its shares for every Aragon share. Westgold said the offer represents a 35.4 per cent premium to Aragon's closing price of 24 cents on Friday and the deal should go a long way in creating a significant mid-tier miner with combined resources of three million ounces of gold-equivalent and annual production potential of 200,000 ounces. Aragon shares rose 20 per cent on the news. Westgold is being advised on legal matters by McKenzie Moncrieff Lawyers. Finally, former BHP Billiton boss Brian Gillbertson-led Jupiter Mines is set to start construction on its South African manganese mine Tshipi Borwa. The open pit mine will cost around $200 million to construct.

Wrapping Up

Fairfax Media has given acting CEO Greg Hywood the full time job and the veteran journalist has wasted little time in laying out his plan to action. Hywood, the ninth man to lead the business in 14 years, said that finding the right people to fill the spot for Fairfax's new metropolitan media division, new digital transactions and newspaper classified divisions was a top priority. According to The Australian, Hywood may also move to press on with the acquisition of small digital acquisitions. Sticking with the media sector and a story that has taken Wall Street by storm overnight, AOL is betting that its $315 million buy of Huffington Post will be the medicine it needs to turn around its fading fortunes. It is pretty expensive medicine, with AOL estimated to pay 32 times earnings before interest, taxes, depreciation and amortization for the "HuffPo”.  As part of the deal, AOL will form a division called Huffington Post Media Group with HuffPo's co-founder and editor-in-chief Arianna Huffington now in charge of all AOL content. There are significant doubts if the HuffPo's partisan style is going to be a good fit for some of the other apolitical publications – TechCrunch, Engadget – and the fact that they will all have to now answer to Arianna Huffington. AOL chief executive Tim Strong was pretty confident overnight that the deal, its biggest since the split with Time Warner in 2009, will be transformational for the company and while Huffington has reportedly described the deal to her employees as AOL and HuffPo's "Sputnik  moment”  many in the market have their doubts. Back to local news, Sonic Healthcare has picked up another laboratory business in the US with the company buying California-based Central Coast Pathology Consultants. The latest deal follows on from Sonic's recently announced acquisition of Physician's Automated Laboratory for $30 million, which is also based in California. The acquisition, expected to be around the $30 million mark, has been funded from Sonic's existing debt facilities and UBS analysts reckon that Sonic's acquisitive streak in the US is set to continue. Finally, The AOL-HuffPo deal wasn't the only deal making headlines overnight with offshore drilling specialist Ensco announcing a $US7.3 billion cash and scrip deal to acquire Pride International of Houston, to create the second-largest offshore driller in the world. US conglomerate Danaher Corporation has lobbed a $US5.8 billion cash offer to buy Beckman Coulter, a maker of diagnostic research equipment for biomedical companies and Warren Buffett's Berkshire Hathaway has agreed to take over the remaining shares of its subsidiary Wesco Financial Corporation for $US547.6 million in stock and cash.