Breakfast Deals: Rio's aluminum scrap

Rio’s failure to offload Pacific Aluminium raises questions about its future, while ACM tracks towards a market listing.

Tom Albanese couldn’t sell Pacific Aluminium and, it turns out, neither could Sam Walsh. Rio Tinto is stuck with the business. Meanwhile, debt collector ACM Group is apparently moving towards an IPO, Dexus Property Group is reaching for peace with Commonwealth Office Property Fund and Thomsons Lawyers is in merger discussions with Herbert Geer.

Rio Tinto, Pacific Aluminium

After almost two years of searching for an exit from Pacific Aluminium through a whole trade sale, partial sale or IPO, Rio Tinto has pulled the pin and reintegrated the unwanted business back into Rio Tinto Alcan.

Despite constant attempts to rid itself of the division, which includes the aluminium and alumina assets across Australia and New Zealand, Rio said it was “not possible in the current environment” to get Pacific Aluminium away for a reasonable price.

New chief Sam Walsh said “good progress” has been made towards improving the business, but more needs to be done.

“I think the market was aware that PacAl was not going to sell,” Mr Walsh told reporters.

“I’m a realist, I’m a pragmatist: Let’s get on with life. Running two aluminium businesses within one organisation – that’s not all that productive.”

In hindsight, it’s clear Walsh’s interview with UK newspaper The Telegraph back in June was a way of preparing shareholders for yesterday’s announcement.

At the time, Walsh started talking about the potential of other nations throughout Asia, and indeed Africa, to pick up some of the slack from China’s ebbing demand as it urbanises.

“That will provide continuity for our business. The sort of things we supply – there are no substitutes. If you want to urbanise, industrialise, you need steel, you need copper, you need aluminium.”

This columnist noted that the comment mightn’t have much significance given that, if Rio really did have faith in the aluminium market, it would reintegrate Pacific Aluminium into Rio Tinto Alcan.

It appears what that observation needed was one more piece of the puzzle. Rio would reintegrate Pacific Aluminium if it had faith in the market or no hope of selling the business for a reasonable amount.

Some commentators are rightly pointing out that this raises questions about Walsh’s potential to reduce Rio’s costs via asset sales.

It’s fair to ask those sorts of questions, but aluminium really is the pits. It took Rio 15 months to sell its diamond business, but it did sell it in the end.

He’s got plenty of other options to hive off assets. Remember Deutsche Bank’s Paul Young said Rio and rival BHP Billiton could sell a combined $35 billion in assets.

Thirty-five billion dollars! To that we say, Pacific who?

But while we’re speaking of Rio’s aluminium assets, a last minute deal to keep Rio’s majority-owned New Zealand Aluminium Smelter on the other side of the Tasman appears to have secured the future of the ambitious $NZ 3.2 billion ($2.8 billion) float of Meridian Energy.

ACM Group

And while we’re talking floats, Macquarie Capital and UBS have reportedly picked up joint lead manager spots for the IPO of debt collector ACM Group.

The Australian Financial Review reports that the deal could be worth $300 million for current owner Bert Vieira, who is known for horse racing.

Dexus Property Group, Commonwealth Property Office Fund

Dexus Property Group has made further disclosures about its stake in takeover target Commonwealth Property Office Fund that has brought legal action in the federal court to an end.

Last month, Commonwealth Bank signalled its exit from listed property management and Dexus secured a forward contract with Deutsche Bank for shares in Commonwealth Property Office Fund.

Dexus then informed the market that it had a relevant interest in the fund of 14.9 per cent.

The independent directors of the fund took issue with that and lawyered up on the grounds that Dexus hadn’t given enough information about its arrangement with Deutsche.

Well now we know. Following talks between the pair, Dexus told the market that it’s Deutsche deal has a ceiling price of $1.20, a floor price of $1.02 and a settlement date of July 25, 2014.

The fund’s shares finished trading yesterday at $1.17.

Dexus engaged King & Wood Mallseons during the encounter with CBA.

Thomsons Lawyers and Herbert Geer

Speaking of lawyers, commercial firms Thomsons Lawyers and Herbert Geer are reportedly looking at a merger that would catapult them up to one of the top 10 law firms in the country.

The Australian Financial Review understands that talks between the two are “at a serious but preliminary stage”.

Combined, the two firms would have over 100 partners. Thomsons is currently the 18th largest firm in the country by partners, while Herbert Geer is ranked outside the top 30.

Wrapping Up

Australia’s Perpetual has taken advantage of New Zealand’s botulism scare to pick up shares in the Fonterra Co-operative Group.

Perpetual picked up 1.26 million units or 1.17 per cent of Fonterra’s shareholder fund, for $7.32 million as the price dipped on news that the dairy company announced some of its products could have been tainted with a bacteria that can cause botulism.

As an aside, botulism is not a word business journalists get to use too often.

And finally, in more appetising news, QBE Insurance is understood to have taken a strategic stake in freshly listed insurance broker Steadfast Group.

The Australian Financial Review understands that QBE took 2 per cent of Steadfast in last week’s successful IPO. At those levels, the insurance giant doesn’t have to declare its hand.

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