BREAKFAST DEALS: Rio raid

Rio Tinto secures a majority stake in Ivanhoe, while doubts are emerging over a PacBrands takeover.

Mining giant Rio Tinto has wasted no time securing a majority stake in Ivanhoe Mines just a week after receiving the last official green light to do so. Rio has forked out $282.2 million to bring its stake to 51 per cent; now its task is to get talking to Ivanhoe founder Robert Friedland and see if it can get Oyu Tolgoi all to itself. Meanwhile, talks between Pacific Brands and private equity suitor Kohlberg Kravis Roberts are reportedly moving at a snail’s pace, prompting concerns from one institutional investor that this deal isn’t going to happen. Elsewhere, there’s word that TRUenergy’s parent still believes a float is a 2012 proposition, talk could finally turn to action amongst the upset Spotless Group shareholders, and Lynas Corp has paid a perception price for its funding agreement to keep its Malaysian refinery going.

Rio Tinto

Rio Tinto hasn’t waited long at all to secure a majority stake in Ivanhoe Mines, its Canadian partner on the Oyu Tolgoi copper-gold project in Mongolia. Rio has picked up 15.1 million Ivanhoe shares for $C302 million ($282.2 million), or an average of $20.00 a share, to increase its stake to 51 per cent from 49 per cent. The deal was done with two unnamed sellers in a privately negotiated deal.

While remaining Ivanhoe shareholders might be glad to hear Rio paid a premium to the current trading price, which was around $C17.85 overnight, the miner said it does not intend to purchase more shares – though it reserves the right to do so if need be.

The question now becomes whether Rio can successfully use its majority to negotiate with Ivanhoe founder and boss Robert Friedland for greater control of Oyu Tolgoi, considered one of the world’s largest copper-gold deposits.

Pacific Brands, Kohlberg Kravis Roberts

Doubts have been raised about the likelihood that Pacific Brands will agree to a takeover deal from private equity player Kohlberg Kravis Roberts because, it’s said, the suitor doesn’t appear to want it that badly. Two weeks ago the embattled clothing manufacturer PacBrands announced that it was in preliminary discussions with KKR and while a price wasn’t discussed, likely valuations thrown around hovered between $600 million and $700 million.

However, The Australian reports that things haven’t progressed beyond the "preliminary” stage. The newspaper reports that discussions are continuing, but also brings concerns from an unnamed institutional investor that it appears KKR’s move could have been a "first-pass approach” and nothing might come from it.

PacBrands shareholders should take heart from the fact that their company has been well marked as a takeover target and if KKR isn’t going to take it, another private equity firm will be thinking about it. It should also be said that the KKR discussions were made public before a price had even been put, which gives you an idea as to just how early this potential union was outed.

TRUenergy, CLP Holdings

It appears there’s anything but a power outage at the parent company of TRUenergy, CLP Holdings, and its plans for a float in the second half of this year. Last week a report emerged indicating that the Hong Kong-based company was starting to think about 2013 because of an IT systems upgrade and turbulent equity markets. However, The Australian Financial Review understands that the IT upgrade was factored in to the original timetable for a potential $4 billion float in the second half of this year.

That leaves ‘only’ the health of equity markets standing in the way of a float. Here’s hoping that Europe can get its act together.

Spotless Group, Pacific Equity Partners, Orbis Investment Management

Yet more talk from the players associated with Spotless Group, but this could actually be consequential. Up until now a posse of three shareholders have been baying for the cleaning services company to engage with suitor Pacific Equity Partners over its offer price of $711 million, rather than the Spotless asking price of $743 million, at which point due diligence would be allowed.

Orbis Investment Management has been one of those three shareholders and senior portfolio manager Simon Mawhinney says his company is seeking changes at the board level, according to The Australian Financial Review. Mawhinney doesn’t use the word spill, but does emphasise how important the chairman is in situations like this, possibly implying that he’d prefer Peter Smedley go and a more ‘takeover friendly’ chairman be installed.

Smedley has a tough reputation and given that he’s already extracted a higher offer from PEP than previous private equity suitor Blackstone, which came in with an offer of $657 million, he won’t go quietly.

Lynas Corp, Mount Kellett Capital Management

Lynas Corp might have secured $US225 million ($214 million) worth of funds for its Malaysia refinery, but at a price to its image. The Australian rare earths miner announced that it has sold $US225 million in convertible bonds to Mount Kellett Capital Management, a firm with $6 billion under management run by former Goldman Sachs bankers that, by its own account, specialises in "global distressed, special situations and opportunistic investing”. The bonds will return a coupon of 2.75 per cent for a term of 4.5 years. Lynas said they have a conversion price of $1.25.

Further, Lynas has also been forced to delay the start-up of the Malaysia refinery to the second quarter of 2012 (from the first) and book $40 million in cost blow-outs. Lynas is hoping to win approval from the Malaysian Atomic Energy Licensing Board to start refining as soon as possible, with the country’s monsoon season and delays in procurement blamed for the extra costs.

In the lead up to the trading halt that Lynas is due to emerge from this morning, the miner’s shares added 26 per cent (over just four sessions). It’ll be interesting to see how investors react to the funding agreement.

Bandanna Resources

Queensland coal explorer Bandanna Resources was slapped with a speeding ticket yesterday after its share price shot up 18.8 per cent to finish the session at 69.5 cents. That got some tongues wagging that Bandanna was close to inking a joint venture partner or possibly something more. It’s expected that Bandanna will tell the market that discussions are ongoing, although The Australian Financial Review has received word that South Korea’s Samtan is within calculation for a joint venture deal, particularly given that it holds a 10 per cent stake in Bandanna.

Wrap up

Fresh from its victory over the Australian Competition and Consumer Commission regarding the Franklins merger, grocery retailer Metcash reportedly wants to wait and see what happens with Woolworths and its foray into the hardware retail market before it really entertains buying the other half of Mitre 10 it doesn’t already own. Metcash picked up 50.1 per cent of the hardware retailer for $55 million in 2010 and while it can grab the remaining 49.9 per cent anytime this year and next, chief executive Andrew Reitzer has told The Australian Financial Review the company will sit back and observe Woolies before it makes a move. The same newspaper also reports that Macquarie is one of three investment banks set to be named as joint lead managers of the New Zealand float of Mighty River Power, worth $1.5 billion. The other two are Credit Suisse and Goldman Sachs.

Newcrest Mining says it lodged an application with Canadian regulators for a secondary listing on the Toronto Stock Exchange last month. Meanwhile, Westpac Banking Corp has raised $3.1 billion in its second big domestic covered bond issue, but again it was forced to pay a bit of a premium, coughing up 165 basis points above the benchmark swap rate.

And South Korean steel major POSCO is parting ways with managing director SM Woo just after the long-serving boss inked a deal with mining magnate Gina Rinehart that effectively doubled her net worth in one go. POSCO is an active player in the Australian mining M&A market; it’ll be interesting to see how the new boss, SC Shin, stamps his authority.

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