BREAKFAST DEALS: Rock bottom Billabong

Any Billabong deal is likely to be heavily discounted, while Ten Network seems to have all but given up its fight for Southern Cross.

Billabong International should be within days of having final deals on the table from its suitors and the market isn’t feeling the love. The broader industry shows it’s just not a good time to sell. Ten Network has really gotten under the skin of regional broadcasting partner Southern Cross Media, not at a good time too. Meanwhile, General Electric isn’t selling an Aussie portfolio to Mirvac, but there are still reasons to be excited, Nathan Tinkler could be compelled to reveal more than he might like to in court later this week and Fairfax Media shareholders should find a way to buy out Gina Rinehart.

Billabong International, Quiksilver

Embattled surfwear company Billabong International must be within days of receiving final proposals from its two bidding consortiums that started off matters at an indicative $1.10 a share. The market isn’t looking optimistic.

The middle of this month was the deadline set for the two bidders, Paul Naude-Sycamore Partners and VF Corporation-Altamont Capital. If we’re getting literal, the middle of this month is Friday.

The Australian reports that analysts believe the bidders might table an offer of 90 cents, perhaps even as low as 80 cents a share. The upper end of that range would value Billabong at $430 million, down from the $526 million that the two consortiums first pitched at with non-binding, indicative bids.

That explains why the share price is at 85.5 cents.

If it’s only one bidder the price is likely to be towards the lower end because the battered register will face the turnaround strategy of chief executive Launa Inman. It’s a good strategy, but it’ll take four years to execute.

The signs haven’t been good lately for the industry broadly. Just last week, the Australian-founded and now New York-listed Quiksilver reported deeper losses for its first quarter.

Quiksilver, dealing with many of the issues Billabong faces, is carrying out its own turnaround strategy. But with the results missing expectations, investors smacked the stock with an 8 per cent plunge.

Also last week, news broke that the owners of another Billabong rival, Rip Curl, had pulled their plans for a sale after co-founder Brian Singer called the market a “cesspit”.

Nine Entertainment, Ten Network, Southern Cross Media

Ten Network is behaving as if it has already lost regional broadcasting partner Southern Cross Media to rival Nine Entertainment – and in doing so, it is increasing the chances of that happening.

Yesterday, Communications Minister Stephen Conroy, via a press release less than two pages long, referred to matters of media regulation including the 75 per cent ‘reach rule’ that currently prevents such mergers to a special parliamentary committee.

If you want an idea of what these proposals will do, read Business Spectator’s Stephen Bartholomeusz.

As has been obvious for a while, Ten Network has the most to lose out of the 75 per cent ‘reach rule’ being abolished because its discussions with regional broadcasting partner Southern Cross are reportedly faltering – they’re certainly taking longer than expected – while rival Nine talks possible mergers. All this is happening when Ten is in an appalling state as an organisation.

So it makes sense to oppose the reform, but Ten still needs to keep Southern Cross in the tent and on that front, it looks to be failing.

The Australian Financial Review reports comments from Southern Cross chairman Max Moore-Wilton who claims that Ten, along with Seven Network, which also oppose the changes, are displaying “naked self-interest”.

“I would think that Senator [Stephen] Conroy has been quite disappointed with what has transpired,” Mr Moore-Wilton said, according to the newspaper. “We support what had been a unified position by [lobby group] Free TV.”

Free TV is the free-to-air broadcasting lobby group where the fractures have opened up.

With the matter headed to the parliamentary committee, Ten needs to hope like hell that the Coalition will find it unsuitable because Labor obviously wants the reach rule scrapped.

On that front, it’s not looking good if comments yesterday from communications spokesperson Malcolm Turnbull are anything to go by.

“I have to say I have a lot of sympathy with the argument that the 75 per cent reach rule is no longer relevant in today’s converged media world,” said Turnbull.

“The fact that several of the regional broadcasters, by which I mean Southern Cross and Prime and WIN, have been actively arguing for that limit to be lifted, I think is a powerful testimony for that.”

What’s to say that the reach rule won’t be abolished by this government, but the next? At least by that stage Ten will have bought itself some time.

General Electric, Mirvac Group

The Australian property market was electrified with chatter yesterday that Mirvac Group was close to a $1.5 billion deal for the real estate portfolio of US giant General Electric.

But the whispers look to have been off the mark, with reports indicating that the deal has actually been done with another important US investor, Blackstone Group.

That led to a sense of disappointment that the local property deals market wasn’t lighting up in the way many have expected since Australand was put in play by a proposal from GPT Group and reported interest from Mirvac.

But all this misses the point that the argument about the returning attractiveness of big Australian real estate investments, which is exciting the locally listed players, has caught the attention of Blackstone, which is an $US11 billion company. Not bad.

Nathan Tinkler, Mulsanne Resources, Whitehaven Coal

This columnist approaches speculation about the legal disputes of Nathan Tinkler with some hesitation because it’s now kind of like watching Avatar – it just won’t end. But this is looking mighty important.

Lawyers for the struggling mining magnate failed in their efforts to prevent Tinkler from being forced to appear in the New South Wales Supreme Court as his private vehicle Mulsanne Resources is chased for the $28.4 million agreed placement in Blackwood Corp.

Unless Tinkler comes to a settlement by Thursday night, he could be forced before a judge on Friday morning where lawyers will no doubt press him on his financial position.

That news smashed Whitehaven shares yesterday, where Tinkler holds a 19.4 per cent stake. Despite winning federal approval to expand its Tarrawonga mine in New South Wales just yesterday, the share price plunged 7.2 per cent to a four-year low of $2.39.

That brings the value of Tinkler’s stake to $469.5 million against reported debts of $700 million.

Wrapping up

Given that Fairfax Media shares are at their highest levels since June last year, it’ll be interesting to see if any significant shareholders on the register aside from it’s largest, Gina Rinehart, encourage the mining magnate to take a hike.

Rinehart has taken legal action against highly respected Fairfax journalist Adele Ferguson compelling her to reveal her sources on an unauthorised biography on the mining billionaire.

It’s not altogether unusual for a large shareholder to take legal action against the company, or some of its agents. Indeed we were just talking last week about how Transpacific Industries founder Terry Peabody had done exactly that.

But given Rinehart’s past statements on Fairfax and attempts to get on the board, this is a pretty sorry episode and it might be in the interests of the broader register to find some way to buy her out.

“We are certainly in support of journalist integrity and accuracy, these are important principles in journalism, and are keen to support an effective charter to endorse this in the interests of Fairfax Media, assuming one can be agreed,” said Rinehart’s Hancock Prospecting mid-2012.

Ferguson’s reputation will take an unavoidable hit if she’s forced to reveal any of her sources. For what it’s worth, this columnist recommends you go out and buy Ferguson’s book.

Meanwhile, Aurizon chief Lance Hockridge confirmed that the infrastructure deal with GVK Hancock – yes, Rinehart has a stake in this too – involves a cash payment upfront from Aurizon and another when the plan is finalised. That underlines just how serious these two are about the project.

And finally, The Australian reports that Mackay Sugar has launched a $50 million corporate bond issue with a coupon of 7 to 7.5 per cent, via Brisbane-based FIIG.

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles