BREAKFAST DEALS: Rio writedown

Rio Tinto decides to sit on its aluminium assets, while Etihad eyes off Branson's stake in Australia.

It was apparent when Rio Tinto announced its Pacific Aluminium plans that it wasn’t trying to offload these assets in a seller’s market. China simply has too much domestic power and aluminium is too costly compared to the iron ore model of 'dig it up and ship it east'. Now Tom Albanese and Guy Elliott have acknowledged this is not a great time to be going to market with these assets. Elsewhere, Etihad Airways says it wants Sir Richard Branson’s stake in Virgin Australia. Whether the billionaire will give it away when it’s making such inroads on Qantas remains to be seen. Meanwhile, Telstra mightn’t have shed enough light on its capital management plan to please some investors but it has stuck with its AFL agreement for the meantime. And finally, Robert Millner could be having a chuckle at the expense of Perpetual and Commonwealth Bank is reportedly thinking about going hybrid.

Rio Tinto, Pacific Aluminium

The big wigs at Rio Tinto have acknowledged that it’s not a good time to be selling aluminium assets. Last year Rio decided to spin off 13 assets across Australia, New Zealand, the UK and the US, to be either offloaded via a trade sale, floated onto the Australian Securities Exchange or distributed in specie to shareholders. But after taking an $US8.9 billion writedown on its aluminium unit, Rio is not so sure it should be selling something that no one really wants.

Chief executive officer Tom Albanese and chief financial officer Guy Elliott have both foregone their bonuses for this year thanks to the writedown. The latter was unwilling to break down the profit figures for Pacific Aluminium in a conference call late yesterday, giving some indication of just how unattractive the assets might be to the market at the moment. Best to sit on them and wait for at least some of the pressures currently hurting the aluminium sector – global supply surplus, labour costs and high Australian dollar – to ease.

BHP Billiton

Rio’s arch rival BHP Billiton might be willing to join the miner on the list of aluminium sellers, at least according to Deutsche Bank. Analysts from the investment bank think BHP could consider selling around $US10 billion ($9.3 billion) in smelters and mines from its aluminium, nickel and coal portfolios to help pay for its growth plans. Indeed, chief executive Marius Kloppers said last year that the company would consider such a move and has already begun the process of exiting the diamond and mineral sand businesses.

Virgin Australia, Richard Branson, Etihad Airways

Etihad Airways hasn’t had much luck with its idea of grabbing a big stake in alliance partner Virgin Australia because of the company’s local foreign ownership limits. Sir Richard Branson’s Virgin Group maintains a 26 per cent share of the company set up with the billionaire’s iconic business name. It appears Etihad has found a way around the problem – it wants Branson’s stake.

Speaking at the company’s results presentation in Abu Dhabi, chief executive James Hogan says Branson’s company is well aware that if stock in Virgin Australia becomes available Etihad will jump on it. The question is whether Branson would be willing to part with it. Virgin shares are down 10 per cent over the last 12 months, which is actually pretty good. By contrast rival Qantas Airways is 35 per cent lower than it was a year ago.

Telstra, AFL

Telstra shareholders hoping for an update on the telco’s capital management plans were left disappointed when chief executive David Thodey would only say that a special dividend hadn’t been ruled out, but was unlikely. Meanwhile, Telstra is still considering its options when it comes to its $153 million, five-year contract with the AFL for exclusive mobile broadcast rights. Thodey welcomed the federal government’s decision to review the copyright laws after the Federal Court ruled that rival Optus’ service to deliver games only slightly delayed by using an instant recording and replay system for each user was not a breach of current laws.

New Hope, Perpetual

It’s been a while since we’ve heard anything from New Hope chairman Robert Millner about the proposed sale process. Reports indicated that predominately Chinese and Indian interests were having a look at New Hope for a deal that could be worth $5 billion. However things have gone a bit quiet, particularly since Whitehaven Coal and Aston Resources announced their $5.1 billion merger agreement, quickly relegating New Hope to second on the list of independent Australian coal plays.

Whatever’s going on at New Hope, Millner could be having a small, ironic laugh at the expense of a former foe. You might remember late last year, the cross-ownership arrangements of New Hope, Washington H Soul Pattinson and Brickworks became the subject of interest for Perpetual, a major Soul Patts investor. The argument was that the ownership structure consolidated power to Millner and prevented some sizeable amount of shareholder value from being unlocked. It was to no small degree implied that what enables much of this is the apparently "unindependent" boards overseeing the companies because of a similar "cross directorship" arrangement.

Perpetual unsuccessfully pushed for Matt Williams to be given a board seat so perhaps some alternative value-creating proposals could be considered. Here’s where Millner might be getting his laugh. According to The Age, corporate raider Gary Weiss is planning a revolt against the Perpetual board itself so he can lead a corporate restructure. Apparently the directors there aren't looked upon in a saintly fashion either.

Commonwealth Bank of Australia

Commonwealth Bank of Australia is reportedly considering joining Westpac Banking Corporation in raising some local debt capital. The Australian Financial Review understands that CBA is considering a hybrid capital issue; the banking results next week loom as an ideal opportunity to announce an issue should the bank decide to go for it. As for Westpac, the market knew what its thoughts were earlier this week when it said a Tier 1 hybrid security in the "near future” is on the cards, assuming the market holds together.

Wrap up

Leighton Holdings subsidiary Thiess has hit a bit of a purple patch, picking up almost $2 billion worth of work in the last couple of weeks. The latest is a $180 million contract with the BHP-Mitsubishi Caval Ridge mine project. Starting in a month, works on the product stockpile and conveyer area, as well as heavy-haul roads are on Thiess’ duty list. Meanwhile, another Leighton company, Leighton Properties, in conjunction with private equity firm Carlyle Group has picked up a 3752 square metre site from Brisbane Housing Company, News Limited reports.

Elsewhere, engineering firm Clough has won a second contract from Chevron at the Wheatstone LNG project, worth $400 million. The deal was won together with its joint venture partner BAM International. Also in resources, gold and copper miner Strait Resources is seeking to raise $45 million from an issue at 60 cents a pop. The funds will go towards repaying a loan facility at JPMorgan. Meanwhile, Cape Lambert is seeking to float its Marampa project on the London Alternative Investment Market.

And finally, Austock has offloaded its Austock Securities business to Intersuisse, while Dolomatrix has given the green light to the $58 million sale of four east coast hazardous waste operations to Fox Free Solutions.

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