BREAKFAST DEALS: Rio coal clinch?

Is Rio Tinto talking seriously with Glencore-Xstrata about an Australian coal merger, or holding its Chinese and Indian suitors to account? Maybe it’s doing both. There’s legislative movement afoot for the reach rule, but it comes too late for the networks. Meanwhile, ASX’s raising hasn’t exactly been welcomed with open arms by the market analysts and Billabong International has another high-stakes board meeting today.

Rio Tinto, Glencore-Xstrata

What’s going on with Rio Tinto and its Australian coal assets?

The reports pointing to interest from China’s Shenhua Group and India’s Aditya Birla Group are starting to pile up, with one indicating that the miner could pick up $US3 billion $3.2 billion). Deutsche Bank is handling proceedings.

But it wouldn’t be the first time these two bidders have been linked to an Australian coal deal…only to walk away.

Now, sources indicate that Rio has held “early-stage talks” with Glencore-Xstrata about merging their respective Australian coal businesses, according to Reuters.

Rio owns an 80 per cent stake in Coal & Allied, which is the Hunter Valley’s largest producer. Throw that in with Glencore’s assets and you’ve got a serious operation.

Is it that Rio would ideally like to get out of the business because the coal price is in the pits and it’s looking to raise some cash? Merging the business with another won’t achieve that aim.

Assuming this story is correct – we’re not claiming it isn’t, but how often do these ‘early-stage talks’ stories lead absolutely nowhere? – is Rio engaging with Glencore because it genuinely believes in a merger proposal, or because it wants to give some extra motivation to its suitors?

If the talks have actually been held (both companies declined to comment on the Reuters story) they appear to serve both these aims.

Nine Entertainment, WIN Television, Ten Network, Southern Cross Media

Of those networks hoping that they can get full-fledged merger discussions back under way quick smart, a report in The Australian Financial Review this morning appears to give them reason to hope.

The newspaper understands the parliamentary committee charged with assessing the government’s proposed media changes is poised to recommend that the 75 per cent reach rule be scrapped.

However, as has been obvious for some time, it’s a matter of timing.

The AFR points out that the government could theoretically introduce a bill to get rid of the reach rule in the last two sitting weeks of parliament before the election gets underway.

But that would require some political courage that a primary vote of 30 per cent (according to the latest polls) doesn’t inspire.

When Communications Minister Stephen Conroy was drafting the media legislation, the jostling between the networks culminated in some discussions and much arguing.

Nine Entertainment drifted away from regional affiliate WIN Television, owned by billionaire Ten Network board member Bruce Gordon, and began talks with Southern Cross Media.

But those talks were subsequently put aside when Nine did a deal with WIN for its regional and Perth stations.

Meanwhile, more reports are emerging that reveal Seven West Media has kept Ten from getting its paws on the Tennis Australia broadcast rights contract… or even getting a foot in the door.

The Australian reports that the price will be worth $40 million a year for the next five-year deal, which is more than the AFR reported yesterday.

Whatever the headline price is, Ten boss Hamish McLennan will be seriously disappointed.

ASX Ltd

Analysts have done little to dispel conspiracy theories that the market operator is actually prettying itself up for a big deal.

ASX Ltd’s $533 million capital raising has been described as “overly cautious” because it’s effectively going to be debt free, its stock price is still seen as “too expensive” even after that savage 16 per cent discount and its outlook is “solid, but unspectacular”.

That’s not the language you’d normally expect following a capital raising. Capital raisings don’t usually come when the company already has low debt, the stock isn’t supposed to be expensive at the end (raisings are conducted at a discount, in this case a big one) and its outlook remains unconvincing as a standalone company – hence, a big partnership is still desirable.

Again, this column reiterates that the capital raising might leave the company with a sloppy balance sheet, but it’s worthwhile considering the pending European regulations in regards to clearing houses.

A deal might come before the European regulations come through, but that isn’t the primary reason ASX Ltd has raised cash.

Wrapping up

The Billabong International board is tipped to meet today as talks with its former suitors over recapitalisation plans and possible asset sales drag into a second week.

The market’s fears for Billabong are becoming terribly clear with the market cap now slumping to $93.4 million.

And finally, Australand Property Group is expected to attract a lot of attention for its $220 million office and industrial vehicle sale.

GPT Group has given up trying to win the non-residential bits of Australand and apparently there hasn’t been a suitor to emerge for the whole company. Majority shareholder Capitaland is reviewing its stake.