BREAKFAST DEALS: Rio's aluminium finish

Rio progresses talks to offload Pacific Aluminium, while Dulux eyes garage door supplier Alesco.

By now Rio Tinto is well aware of what it’s like to own assets its register really wished it didn’t. Thankfully, a finish line appears in site for at least some of the Pacific Aluminium assets. Dulux Group has timed its Alesco bid sweetly, though some are wondering how well paint mixes with garage doors. Elsewhere, attention is shifting to what Woodside Petroleum will spend its Browse billions on, APA Group’s largest shareholder is reportedly selling out as it tries to buy Hastings Diversified Utilities Fund and there’s still a few details being kicked around about the news out of Spotless Group and National Australia Bank.

Rio Tinto, Pacific Aluminium

Mining giant Rio Tinto hopes to seal its first Pacific Aluminium deal almost a year after quarantining its unwanted aluminium assets. According to Reuters, Rio Tinto Alcan chief executive Jacynthe Cote has told an aluminium conference in Abu Dhabi that talks over the binding offer from private equity group HIG for the three speciality alumina plants in France and one in Germany are "going very well” and should be completed "sometime in the third quarter”.

Rio announced the Pacific Aluminium proposal in October last year and hasn’t managed to secure a transaction to date. In fact steep power bills in the UK forced Rio to shut the Lynemouth smelter and concerns have been raised about the viability of the US Sebree smelter and the NSW Tomago smelter.

But the mining giant has always maintained that it won’t be bullied into offloading the assets at a price it doesn’t consider reasonable. Cote was sticking to this script in Abu Dhabi, telling the audience no decision had been made about whether the Australia-New Zealand assets would be jettisoned in a trade sale or an IPO.

Dulux Group, Alesco

Dulux Group chief executive Patrick Houlihan has timed his aggressive play for garage door and building materials supplier Alesco Corporation quite well. Dulux offered $2.00 a share to four significant shareholders – believed to be BT, Colonial, Perennial and Northcape Capital – earlier this week, and with 19.96 per cent of the register in hand, offered the remaining shareholders the same deal. The deal values the target at $188.4 million, a 43 per cent premium, which Dulux will find in its $270 million debt facility.

Moving with a 50 basis point cut from the Reserve Bank doesn’t hurt either.

With 40 per cent of the domestic paints market, which is hampered by low building approvals, Dulux needs to expand into other geographies or other product groups. It’s already looking into China, but some are questioning the rationale of picking up Alesco. Dulux counters that it makes sense to offer more building products through its distribution channels.

Despite the tasty premium, some believe that Dulux will have to dig a little deeper given that Alesco shares were trading well above the $2-mark in August last year. The market wasn’t quite willing to buy that theory with the share price rising to $2 exactly, indicating a belief that a deal will be done but a higher offer is hardly a lock.

Alesco is tapping Greenhill Caliburn for defence strategy, while Macquarie Capital is assisting Dulux.

Woodside Petroleum

Now that Woodside Petroleum chief executive Peter Coleman has booked his first major deal as boss of Australia’s largest oil and gas company, the question is what he’s going to spend the money on. When Coleman confirmed the plan to sell down a portion of the group's 50 per cent stake in the Browse LNG projection on February 22, he flagged an acquisition of a "global” nature. Woodside shares jumped 3.7 per cent yesterday – a welcome relief for shareholders that have watched the company’s stock lose 23 per cent over the last 12 months.

Though the deal is subject to pre-emptive rights of existing Browse equity holders BHP Billiton, BP, Chevron and Royal Dutch Shell, Woodside is set to collect $2 billion from Japan Australia LNG, which is a partnership between Mitsui and Mitsubishi. In exchange Japan Australia LNG gets 14.7 per cent of the project. The deal is for 16 per cent of East Browse and 8 per cent of West Browse and values the total project at $30 billion. As Business Spectator’s Stephen Bartholomeusz explains (A slice of Woodside’s fortune, May 1), it also reduces Woodside’s funding obligations for Browse from 46 per cent to 31 per cent, which addresses some lingering market concerns.

Woodside hasn’t given anything away about what the kind of acquisition it has in mind. Just to revisit the share price for a moment, some of that weakness stems from the looming sell down of Shell’s 24 per cent stake in the company. An alternative for Coleman would be to assist Shell’s exit. However, the stake is currently worth almost $7 billion so with the proceeds from the Browse sale Woodside couldn’t come close to buying them out entirely.

APA Group, Petronas, Hastings Diversified Utilities Fund

Australia’s largest pipeline firm APA Group is reportedly set to lose its largest shareholder, Singapore’s Petronas, just as it’s trying to nab rival Hastings Diversified Utilities Fund with a $1.8 billion bid. Reports indicate that Petronas has begun selling down its 17 per cent stake in APA. This mightn’t be such a bad thing for the company as it would then no longer have a foreign company with more than 15 per cent of its register, the threshold where the Foreign Investment Review Board starts paying attention.

However, it’ll be interesting to see, if this story plays out, what the reaction of the APA share price is because the bid for HDF is cash and scrip. As it stands, APA’s bid is live until the end of this month and the company is still waiting on approval from the Australian Competition and Consumer Commission. The consumer watchdog is concerned about the 80 per cent market share APA would have on east-coast gas if it wins HDF.

National Australia Bank, Spotless Group

As the heat begins to ease in the aftermath of the headline grabbing developments at Spotless Group and National Australia Bank, a couple of details have emerged that deserve some consideration.

Starting with Spotless Group, The Australian Financial Review carries a sceptical observation from JPMorgan analyst Russell Gill that the S&P/ASX small industrials index has risen 12.4 per cent in the time that it has taken Spotless to negotiate a deal only marginally better than Pacific Equity Partner’s opening proposal. Does this mean Spotless has failed to extract a meaningful increase in value?

The reality is Spotless shares were in the toilet at $1.79 in the wake of the failed bid by Blackstone, which is acknowledged in the report, and it’s highly unlikely that its shares would have behaved in line with the small industrials index given that it was very much marked as a takeover target.

Moving on to National Australia Bank. The UK’s largest union, Unite, has slammed National Australia Bank for announcing the job cuts in Australian time, leaving affected UK workers to awake to the news. A senior union official said this was "not the behaviour of a responsible or credible organisation”. Leaving aside the fact that global organisations routinely run into this problem, the animosity in the UK towards the banks, any bank, is palpable.

Secondly, NAB is facing some criticism that its plan to ring-fence its sound banking arms in the UK from the troublesome units is highly confusing. As pointed out here, chief executive Cameron Clyne could be criticised for acting too late, but he has little choice now.

Wrapping up

The identity of the mystery bidder for PMP remains…mysterious, as does that of its defence adviser. The Australian Financial Review reports that PMP still hasn’t appointed an investment bank to defend it against the takeover offer that sent its share price soaring an unfathomable 148 per cent on Friday.

Meanwhile, another report has confirmed that Ironbridge Capital has appointed Macquarie Capital to examine options for Envirowaste, its New Zealand-based recycling company. And finally, Goldman Sachs has picked up the advisory role for the sale of the Clem Jones Tunnel (CLEM7) in Brisbane from receivers KordaMentha.

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