BREAKFAST DEALS: Rio sweetener

Rio Tinto has wasted no time making its mark on Ivanhoe Mines. Just two months after taking a controlling stake in the resources company, Rio looks set to offload a number of its non-core assets – SouthGobi might just be the beginning. Elsewhere, Hastings Diversified investors lose faith in APA Group's takeover, as Canada's DirectCash bids for a slice of Australia's ATM market. Meanwhile, brokers brace for bad news from Metcash and Leighton, and dealmakers watch as Australia's Foreign Investment Review Board reshuffles.

Rio Tinto, Ivanhoe Mines, Chalco, Chalco, SouthGobi

Rio Tinto's cosy relationship with its largest shareholder, Chinalco, appears to be paying off. One of its subsidiaries, Chalco, has now agreed to buy Rio's stake in Mongolia-focused coal company, SouthGobi, which the Australian miner owns indirectly through Ivanhoe Mines. Ivanhoe says it will grant the Chinese group up to 57.6 per cent of SouthGobi, following its friendly offer to buy the full 60 per cent for $890 million – or a 28 per cent premium to SouthGobi's last closing price.

Ivanhoe plans to use proceeds from the sale to help fund the development of its flagship Oyu Tolgoi copper-gold project in Mongolia, which it now expects will cost $6.2 billion to bring online by the first half of next year – that's $200 million more than previously forecast. If it needs more cash still, it might also consider selling its 59 per cent stake in Ivanhoe Australia, or its half-share of Kazakhstan gold miner, Altynalmas Goldwhich, which have also been mentioned in divestment discussions.

Hastings Diversified Utilities Fund, APA Group

All those Hastings Diversified Utilities Fund investors who were waiting for a better offer from APA Group now appear to be running for the exits, after Australia's competition watchdog raised some major concerns about the $1.8 billion hostile bid late on Friday. Hastings shares plunged more than 7 per cent on Monday to close at $1.96 – well below APA's offer price, which is worth $2.16.

In its issues paper, the Australian Competition and Consumer Commission noted that, if the deal were to go through, APA would own 80 per cent of the long-haul gas pipelines in Australia's eastern states, singling out pipelines in and out of Adelaide as particular competition concerns. It's unclear whether APA would go ahead with the offer if it was forced to divest some of these assets, but analysts say the deal looks a lot less compelling.

There is now speculation, including from my colleague Stephen Bartholomeusz, that Hastings could switch from defence to offence. Singapore Power is shopping around its Jenna portfolio of big gas pipelines in Victoria, NSW and Queensland, which would fit nicely with Hastings' existing pipelines in the area. If Hastings' shareholders have given up on being taken over, might they be interested in getting on with growth?

Customers Limited, DirectCash Payments

Canada's DirectCash Payments has checked its bank balance and decided it's healthy enough to acquire Australia's largest ATM operator, Customers Limited, for $173 million.

The $1.27-a-share bid, which has already been recommended by the Customers board, represents a 38 per cent premium on the target's last traded price. And given that both companies market the same brand of ATMs, the assets would be a natural fit. However, DirectCash still needs to find financing not only to buy Customers' shares, but also to service the company's $37 million debt load, according to The Age. Apparently, DirectCash only had credit lines worth $100 million at the beginning of the year.

Customers is being advised by Macquarie Capital and Freehills, and DirectCash has enlisted Ashurst Australia and BMO Capital Markets, according to The Australian Financial Review.

Metcash

Investors are wondering what Metcash has in store for the market today, after the grocery wholesaler put its shares in a trading halt last week pending an announcement about potential impairment charges. Most brokers are anticipating writedowns stemming from the Franklins supermarket chain, which Metcash bought last year with the plan to sell off 80 stores. Sources told The Australian that the company is only about half way through the sales process, suggesting they might be having troubles finding buyers.

But we might also hear more about Metcash's supposed plan to purchase the remaining 49.9 per cent of Mitre 10, after it bought the majority stake a couple of years ago. There's certainly impetus, as Wesfarmers pumps $1.5 billion into Bunnings in response to Woolworths' growing Masters business, so it will be interesting to see whether Metcash feels the need to join the hardware wars.

Leighton Holdings

More and more brokers are building a case for an equity raising by Leighton Holdings, even as the company assures investors it's not required. At the heart of the issue are Leighton's string of big writedowns, and fears there are more ahead – especially at risky projects like Victoria's desalination plant and its operations in the Middle East.

According to The Australian Financial Review, Citigroup is out with a report forecasting a 10 percentage point jump in Leighton's gearing, to 43 per cent, by June 30, which is fast approaching the top end of its historical 34 to 45 per cent target. Deutsche Bank also chimed in, adding that the downside risks to gearing were greeter than an improvement.

Foreign Investment Review Board

Australia's largest and touchiest foreign deals will now be referred to former investment banker Brian Wilson, who has just been appointed chairman of the Foreign Investment Review Board. Wilson, who cut his teeth at Lazard and Citigroup, will take over from former Reserve Bank deputy governor John Phillips, who has presided over government's official advisory panel for 15 years.

Dealmakers will undoubtedly be watching the new chairman closely for hints about what his approach might be. Of course, Wilson has sat on the FIRB's board for three years now, including when it knocked back Singapore Exchange's bid for the Australian Securities Exchange, so he is not expected to stray too far off course. But his elevation does leave one board seat free for new blood, and new ideas. Expect an appointment soon.

Wrapping up

Speaking of foreign deals, Fortescue Metals Group chairman Andrew Forrest made a fiery speech in China last night, where he effectively warned the Australian government not to intervene in transactions stemming from Beijing. His comments were taken as thinly veiled attack on Prime Mininster Julia Gillard's handling of Huawei, the Chinese telecommunications group banned from participating in the national broadband network on security grounds, but must also have geared towards his own resources-hungry customers in the crowd.

Also in the region, Malaysia's second-largest lender, CIMB Group, has moved to increase its footprint in Asia – and Australia – by buying $140 million worth of Royal Bank of Scotland's assets in the region. As well as exposures to China, Hong Kong, India and Taiwan, the deal delivers local businesses covering cash equities, equity capital markets and mergers and acquisitions, according to Reuters.

And at home, Vale will be forced to compensate its local partner Aquila Resources, after the Brazilian mining giant lost a long battle over the value of Aquila's stake in a jointly-owned coal mine in Queensland. Exercising its option to buy Aquila's 24.5 per cent stake in their Belvadere project, Vale had the interest valued at $117 million – but Aquila's advisors put it at $330 million. The bigger miner had resisted appointing an independent valuer to solve the dispute, but will probably be forced to after losing two court battles.