BREAKFAST DEALS: Rio and BHP's deal brakers

With BHP Billiton and Rio Tinto set to deliver heavyweight results it looks like shareholders are pressing the mining giants to put the brakes on deal making and concentrate on share buybacks. More action in the coal sector with Gina Rinehart's coal assets attracting interest from an Indian suitor, while one of Whitehaven Coal's likely suitors – Alpha Natural Resources – could be out of the reckoning after it sealed a $US8.5 billion deal with fellow US coal producer Massey Energy. Meanwhile, AMP could foot a $1.9 billion charge on a long running dispute inherited from AXA, and Centro's advisors plan another gambit to tackle the property group's debt problems. Elsewhere, Woodside and Petronas strike a LNG deal, Cougar Energy's Queensland plans suffer a setback, Pacific Equity Partners postpones its $600 million float of Hoyts and Minmetals starts its hunt for targets.

BHP Billiton, Rio Tinto

As BHP Billiton and Rio Tinto get ready to reveal heavyweight results in February it looks like the shareholders of the mining giants are pressing both miners to steer clear of mega deals and instead return some cash to investors. According to UK's Sunday Telegraph, the shareholders have written individually to the boards of the miners seeking commitments that they utilise their strong balance sheets to launch share buyback schemes. The paper adds that some of the unnamed shareholders have warned that they were willing to vote down the re-election of key board members if their demands were not met. The action may have been precipitated after rumours took hold over the weekend that an acquisitive BHP may be planning a bid for UK's BG Group. The UK energy major's shares hit a high last week on the BHP speculation after analysts at Exane BNP Paribas said that BG was a logical target for the miner as it looks to beef up its oil and gas unit. However, in light of its failed $US39 billion hostile play for Potash Corporation of Saskatchewan (PotashCorp) BHP's shareholders seem less than enamoured by BHP's M&A ambitions. Meanwhile, with Rio Tinto edging closer to its target Riversdale Mining, some of it shareholders have expressed their concerns to the paper that the $3.9 billion deal could just be the beginning for the miner. The shareholders' apprehensions illustrate that Rio still has some way to go before it erases the damage of the Alcan acquisition in 2007. Many shareholders saw the acquisition, which punched a massive hole in Rio's balance sheet, as reckless and evidently they are not keen on the prospect of a re-energised Rio hitting the acquisition trail again.  

Hancock Coal, GVK Power

Meanwhile, there is plenty of action in the coal sector with billionaire Gina Rinehart's coal assets in Queensland reportedly attracting interest from an Indian suitor. According to India's Economic Times, GVK Power & Infrastructure has submitted a $US2 billion offer for a controlling stake in the Kevin Corner miner owned by Rinehart's Hancock Coal. GVK is reportedly one of the six bidders shortlisted in an auction process that was started in October last year, with Chinese and Japanese power companies also in the mix. Kevin Corner is estimated to have coal reserves of around 4.3 billion tonnes and has a capacity to produce 30 million tonnes a year. Elsewhere, it looks like one of the likely suitors for Whitehaven Coal – Alpha Natural Resources – could be out of the running for the NSW-based coal miner after it sealed a $US8.5 billion deal with fellow US coal producer Massey Energy. The Alpha-Massey deal will create the world's third-largest coking coal producer. Indicative non-binding bids for Whitehaven are expected to drop this week and while Alpha looks out of the race there is still a healthy appetite for the coal miner with almost 20 suitors reportedly expressing their interest.  

AMP, AXA Asia Pacific

A legal dispute over prosperity bonds could cause AXA Asia Pacific's new owner AMP a $1.9 billion headache with speculation that the wealth manager could be left with the bill if the case doesn't go AXA's way. The problem has come into light after an expert witness in the court case against AXA reportedly valued the prosperity bonds bought by two investors, Scott Tyne and Garrick Hawkins, at an embedded value of up to $1.9 billion dollars, value that has not been recognised by AXA. According to The Sydney Morning Herald, the witness Richard Lyon –an actuary with Professional Financial Solutions – has told the court that Tyne and Hawkins could suffer heavy losses because of AXA's failure to recognise an option value contained in their life insurance contracts. The option value allowed Tyne and Hawkins to cancel transactions when the market moved against them, by issuing a notice to switch, between a market-linked unit fund and a cash fund that was valid for three days. Both allege that AXA has reneged on the original terms and it looks like AMP has inherited the final stages of this complicated legal tussle. The Victorian Supreme Court is due to hear the case in March.

Centro

Shopping centre owner Centro's advisors JP Morgan and Moelis & Company have reportedly unveiled their latest gambit in tackling Centro's debt pile. According to The Australian Financial Review, JP Morgan and Moelis have proposed to continue the sale of Centro's US assets while holding on to its Australian assets in the current listed entities. Given that most of the equity in Centro is held in those US assets the paper suggests that such a scenario will only be worthwhile if Centro taps the market for capital. That's not going to be easy if Westfield Group's recent experience with its Westfield Retail Trust is anything to go by.  

Woodside Petroleum, Cougar Energy

Woodside Petroleum has sealed a deal with Malaysia's Petronas International Corporation for up to 19 cargoes of liquefied natural gas from its Pluto project in Western Australia. Woodside said in a statement that it has signed an LNG sale and purchase agreement with Asean LNG Trading Co, a subsidiary of Petronas. Elsewhere, Cougar Energy's UCG plans in Queensland have been dealt a blow after the state government shelved its proposed plant in the state. Cougar has gone into a trading halt after the Queensland government shelved the company's planned underground coal gasification (UCG) plant in the state. The Queensland Department of Environment and Resource Management (DERM) has rejected the evidence provided by Cougar that its UCG trial work at the Kingaroy site was environmentally safe. Cougar hit the headlines in July last year after it was at the heart of a water contamination scare at the site after bore sites showed traces of carcinogen benzene and the toxic chemical toluene. DERM has asked Cougar to limit its activities at the site and the company said that it is seeking urgent talks with the department to find out the reason for and consequences of the decision. Cougar shares last traded at 4.5 cents.

Wrapping up

Tough market conditions have apparently derailed Pacific Equity Partner's (PEP) plans to float its Hoyts's cinema business. According to the AFR, a dearth of summer blockbuster hits has hurt cinema admissions and PEP may look to push through with the $600 million float when the next lot of Hollywood money spinners hit the theatres in May, June and July. Meanwhile, the race for salmon farmer Tassal Group could heat up in the coming months with the target saying that it has received indicative proposals above the $278 million offer put forward by Pacific Equity Partners. Tassal said it would provide further details as part of its 2011 first-half results "around” February 18. In the mining sector, the boss of Minmetals Resources, Andrew Michelmore, has told Bloomberg that he is ready to spend at least $US2 billion on acquisitions.  Minmetals – the Hong Kong unit of China's biggest metals trader – is looking at opportunities in the base metals space and Michelmore added that mineral sands, alumina, bauxite and uranium acquisitions would also be under consideration. Meanwhile, former Woolworths boss and the current chairman of Fairfax Media Roger Corbett has been appointed chairman of pharmaceutical company Mayne Pharma Group. In other news, Burkina Faso-focused gold explorer, Vital Metals' CEO and managing director Howard Carr is set to leave the miner after a three month transition and handover period. In international news, social networking site LinkedIn has decided to go public with the company hoping to launch an IPO this year. There is talk that 2011 could be the year of the web IPOs and the success or failure of LinkedIn's listing could go a long way in setting the stage for Facebook's planned IPO.