BREAKFAST DEALS: Rip Curl lines up

Surfwear company Rip Curl goes on the market, while Fortescue discusses asset sales.

Another Australian surfwear player is going to the market looking for a buyer – Rip Curl. This could influence the dynamic evolving between Billabong International and its two private equity suitors. Meanwhile, Fortescue Metals Group founder Andrew Forrest might be speaking to Seven Group billionaire Kerry Stokes or Baosteel, or he might not. Elsewhere, Qantas is on the front foot on reports about its movements pre-Emirates deal, Fairfax Media directors are buying stock and PrimeAg could have an opportunist on the register.

Rip Curl, Billabong International

Another surfer is cutting in on Billabong International’s wave.

According to The Australian Financial Review, iconic surf brand Rip Curl has been put up for sale by its founders Doug Warbick and Brian Singer.

Like Billabong, Rip Curl rose from humble beginnings to become a defining global brand. But also like Billabong, Rip Curl is facing increasing competition, currency headwinds and the rise of the internet.

The newspaper says Warbick and Singer, who own 72 per cent of the company, could collect over $100 million each if their company achieves the $400 million sale price that’s hoped for. However sources indicate that $300 million is more realistic.

Chairman Ahmed Fahour, chief executive of Australia Post, is also set for a healthy payday, with 2 per cent of the company to his name.

Bank of America Merrill Lynch is exploring the options on behalf of Rip Curl.

Developments at Rip Curl will be closely monitored with the Billabong sale running in the background.

TPG Capital and Bain Capital are currently in discussions with Billabong about potential offers that, so far, have been pinned at $1.45 a share, or $688 million for the lot.

It’ll be interesting to see whether private equity suitors also dominate the interested parties for Rip Curl. One would expect there’d at least be a few players in the mix.

Fortescue Metals Group, Kerry Stokes, Baosteel

Fortescue Metals Group founder Andrew Forrest is likely to get some room to move on the debt covenants as it ponders asset sales.

With the iron ore miner in a trading halt, an announcement from the company could come as soon as today indicating that its lenders have enough confidence in management to ease the covenants as discussions with potential buyers proceed.

Just whom those deals might be with remains somewhat unclear.

Media reports have linked Fortescue to a deal with Seven Group billionaire Kerry Stokes, that would see the media mogul’s WesTrac business pick up rolling stock and heavy machinery assets for cash. This has since been denied.

Just imagine how bizarre this story would have sounded six months ago – an Australian mining billionaire going to an Aussie media mogul for help.

There were also unconfirmed reports that indicated that Chinese giant Baosteel was in talks with Fortescue over a possible 15 per cent stake. This has also been denied.

It won’t be at all surprising if China ends up playing a role in Fortescue’s asset sales. The crucial thing to remember is that, if the reports turn out to be true and Forrest does get some wiggle room from his lenders, Fortescue will have some time to nut out its asset sales.

According to The Australian Financial Review, Fortescue needs two-thirds of its lenders to agree to loosening the debt covenants to win approval.

Already the iron ore miner has delayed $US1.6 billion in spending in fiscal 2013 and offloaded its Pilbara power station for $US300 million.

The next step will likely involve some of the following assets: airstrips, accommodation villages, Northstar magnetite deposit and other power stations.

The more unpalatable possibilities – a dilutive capital raising or rail asset sale – are looking a little less likely this morning.

Although it should also be said that QR National has been linked to a possible deal on those same rail assets. It underlines just how much uncertainty there is for this chapter in Fortescue’s history.

Qantas Airways, Singapore Airlines

National carrier Qantas Airways emphatically denied reports from last week that it sought to muscle Virgin Australia out of its alliance with Singapore Airlines before its deal with Emirates.

A report from last week indicated that Qantas executives tried reaching out to the Singaporean’s parent company Temasek, because the direct relationship with the carrier isn’t swell.

While nothing came of it, it was understood that Temasek, which owns a majority of Singapore Airlines, wouldn’t be opposed to the idea sometime in the future.

But Qantas is having none of it. A statement emailed to Business Spectator on Friday rejected the story entirely.

"Qantas rejects the latest round of speculation surrounding its landmark alliance with Emirates,” the flying kangaroo said.

Qantas went on to emphasise that it’s alliance with Emirates, a 10-year code-sharing deal and strategic alliance, is "deeper and more significant than the original speculation around it suggested” and that this latest report was an attempt to "rewrite history”.

The Australian carrier is in a strong position to deny the claims that came from unnamed sources.

It also has good motivation to preserve the preceding narrative of the discussions with Emirates, which it claims to the Australian Competition and Consumer Commission is integral to its future in Europe.

While you could argue that Qantas would be in every right to explore all options necessary in Asia, which is more important strategically speaking the long run, we’ll take the carrier at its word.

It’s Emirates all the way.

Fairfax Media, Jack Cowin, Greg Hywood

Directors in potential takeover target, particularly for private equity, Fairfax Media have been dipping into the market for some stock in recent days.

New board member Jack Cowin has forked out $440,000 for 1 million shares, which is an expected gesture for an incoming director. Also, chief executive Greg Hywood has splashed $100,000 for a bigger slice.

The news comes in the wake of criticisms from major Fairfax shareholder Gina Rinehart about the amount "skin on the game” that Fairfax directors have via share ownership. The jab from the resources billionaire was primarily aimed to chairman Roger Corbett.

Fairfax shareholders should applaud its directors building greater positions in the company. But keep an eye on this story because if and when a suitor emerges for the media company, questions will inevitably be levelled at both directors about who knew what and when.

Breakfast Deals is not suggesting that Fairfax has received so much as a postcard from a potential buyer. It’s just that director share purchases, while encouraged, always cause headaches.


Speaking of Corbett, his chairmanship at PrimeAg is about to get a little more interesting.

The company put itself up for sale about two weeks ago and on Friday an unnamed buyer snapped up 8 per cent of the company at $1.30 a share.

We won’t find out until this week’s substantial shareholder notice is lodged to the ASX, but it’s a good sign for the target when opportunists are circling.

It’ll be interesting to see which players emerge for the agricultural fund.

Just today, The Australian reports comments from Industrial Bank of China local operations boss Han Ruixiang that his bank is pulling back its lending to Australian resources players and putting it instead shifting its attention to agriculture.

It’s indicative of the shift in the concept the resources boom. Many commentators in Australia have claims that it’s over.

While this point remains up for debate, a quick glance at the trading in agricultural resources shows that such a boom is not over – it’s been redefined.

Wrapping up

Property group Mirvac is eyeing up insolvency firm McGrathNicol to take the wheel in its quest to get the money it’s owed by companies of coal tycoon Nathan Tinkler.

Mirvac is seeking around $17 million from two Tinkler companies, as part of a dispute that’s heading back to the NSW Supreme Court tomorrow.

Meanwhile, online comparison player iSelect is destined for an initial public offering in the next 12 months, according to The Australian Financial Review.

The newspaper reports that management has arrived back from Hong Kong and is meeting with institutional investors this week in Melbourne and Sydney. The company is looking to get more than $25 million through its broker EL&C Baillieu.

Still on technology, TZ Limited has done a deal with Singapore Post that chairman Mark Bouris says will expand the company’s model into e-commerce from technology provision. TZ provides secure smart locker technology.


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