Rupert Murdoch looks to have pulled the pin on any plans for another major acquisition after doubling the share buyback program at a cost of $US5 billion. Meanwhile, fellow billionaire James Packer is believed to still be ‘borrowing’ Echo Entertainment shares in a similar fashion to his derivatives trade that nabbed Crown 10 per cent. Elsewhere, questions are flying around Billabong International after it dumped chief executive Derek O’Neill, BlueScope Steel has managed to buy back some US bonds in cheap fashion and we've got some hint about where PMP's mysterious bidder is coming from.
Rupert Murdoch’s News Corporation has doubled the size of its share buyback program from $US5 billion to $US10 billion. The original plan announced last year came in response to the escalating hacking scandal at UK tabloid newspaper News Of The World, which has since been closed. News has been cashed up since it begun circling the remaining stake in BSkyB that it doesn't already own. As we all know, those ambitions fell apart when the hacking scandal broke and News opted to hand some of that money back to shareholders. This latest move suggests that major acquisitions are off the radar for Murdoch as he focuses more on internal issues.
James Packer, Crown Limited, Echo Entertainment
Billionaire James Packer caused quite a stir when he increased his stake in Echo Entertainment, via Deutsche Bank and a cash-settled equity derivative, because he was allowed to be a little more ‘flexible’ with the substantial shareholder notice.
Crown now has 10 per cent of Echo and is lobbying the NSW government to be allowed to increase that, but The Sydney Morning Herald understands that Packer has continued to "borrow” Echo stock in a similar fashion that allowed him to hit that 10 per cent threshold. If this is true and the O’Farrell government give him the go-ahead, Packer could assume a bigger stake in Echo quite quickly.
Perhaps the Consolidated Media Holdings (CMH) stake sale, which Telstra, News Limited and Kerry Stokes’s Seven Network are watching because of the Foxtel interest, will progress in earnest. Telstra has reportedly leant on investment bank Credit Suisse to advise it on a CMH strategy.
Billabong International has spectacularly dumped chief executive Derek O’Neill and replaced him with former Target boss Launa Inman, raising questions about what the company’s immediate future will hold. Private equity firm TPG Capital tried to nab Billabong for $3.30 a share in February. But founder Gordon Merchant, who owns 16 per cent of Billabong and influences a lot more of the register, wasn’t going to sell for anything less than $4.00. The shares finished trading at $2.29 yesterday, having lost 65 per cent in the last 12 months.
The thought is that with a new chief executive, private equity could return to the fray if Inman can’t alter the clothing company’s fortunes in good time. Meanwhile, the almost 50 per cent sale of the Nixon accessories brand was done in the hope of preventing a forced capital raising to settle the balance sheet. Given that a new CEO is in the works, some are expecting a few writedowns as Inman puts a line between O’Neill’s tenure and her own, which could mean that a capital raising is still a possibility.
We should also take this time to think about what’s going on at Pacific Brands. Billabong and PacBrands were both thrust into the private equity spotlight around the same time, with PacBrands getting some interest from Kohlberg Kravis Roberts. Since then, things have gone quiet at PacBrands and the share price has responded accordingly, sinking from 72 cents around the time of the KKR news to 62 cents.
Steel manufacturer BlueScope Steel has managed to buy back $US300 million ($297 million) in private placement notes, paying for them with its banking facility. BlueScope is moving against the crowd on this one. A number of Australian corporates have tapped the US bond market instead of leaning on their banking syndicates, or shareholders, for funding. BlueScope is doing the opposite (although it did have to tap shareholders for cash earlier this year).
According to chief financial officer Charlie Elias, the move will save approximately $US20 million per year. But the interesting bit is that BlueScope will not incur any redemption or make-whole costs. Usually, when a big corporate shuts a bond down early, it cops a fee like the common consumer does when they pull money early from a term deposit.
The lack of such a fee in this instance means either BlueScope made that part of the original agreement or the bondholders wanted out early after looking at the global steel market and strong Australian dollar.
PMP still hasn’t told us who is responsible for the $253 million takeover proposal that it informed us about almost two weeks ago. The Australian Financial Review believes that it’s a Brisbane-based, family-owned company that’s behind the conditional, non-binding proposal, which is being backed by US private equity.
The offer range is 68 to 78 cents and PMP shares initially shot up to just beneath that range, around 65 cents. But the stock has since lost ground as investors grow less and less confident that the proposal will ever transition into a firm offer. Not naming the bidding company really does create the impression that this is not happening.
Origin Energy could be about to receive billions in cheap funding from the US government for the Australia Pacific LNG plant in Gladstone, reducing its need to raise equity. The US government’s Export-Import Bank, which is used to assist mainly US manufacturers, announced that it has offered almost $US3 billion in project financing to APLNG, which is made up of Origin, American energy giant ConocoPhillips and China’s Sinopec. If accepted, it will be the second largest financing project from US EX-Im Bank in its almost 80-year history.
Origin and Woodside have ambitious expansion plans over the next few years and both have opted for selling small bits of equity in some of the their key projects to take the pressure off upcoming financing commitment. Deals like this ensure that Origin will hold on to as much of the project, and proceeds, as possible. Additionally, Origin is also said to be close to inking similar deals with China Ex-Im Bank.
Aquila Resources, Fortescue Metals Group
Aquila Resources has taken a crucial step towards developing the proposed first stage of a multi-user port at Anketell, 30km east of Karratha in Western Australia. Premier Colin Barnett announced that the state government has moved to acquire necessary land for the Pilbara’s next major deepwater port facility, putting Aquila in the hot seat to develop the project.
Aquila is theoretically competing with Fortescue Metals Group, but Andrew Forrest’s company is also considering the Port Hedland Outer Harbour development as well. The question for Aquila is whether it can raise the extra $2.5 billion it needs. The company has been in talks with China Development Bank, but the lender has been unwilling to approve such a big load without approval from the Western Australian government. Hopefully this news will move talks along.
Westfield Group, Hammerson
Retail property giant Westfield Group could view British player Hammerson as a possible takeover target, according to independent researcher CLSA. The Australian reports that CLSA analyst John Kim has told clients that the Australian retail landlord, which is cashed up thanks to its asset sales in the US announced last month, has a "compelling case” to take Hammerson.
The European retail property market is going through a stage of consolidation, with US major Simon Group taking more than a quarter of Europe’s Klepierre for $US2 billion ($1.97 billion). Westfield is already looking at a bigger presence in the UK and with the sector trading at below net asset value, there are buying opportunities. However, Kim adds that Hammerson is 21.6 times estimated earnings, which is expensive.
Additionally, Westfield have tended to emphasise that the selldown of stakes in non-core US assets is primarily to pay down debt, invest in better existing sites and improve return on equity. If the company were to opt for a large acquisition in the US, it would have to explain to the market why, in light of previous strategy guidance.
Keep an eye out for the much awaited bidder’s statement from Dulux Group, which is expected to land in the hot hands of Alesco shareholders as soon as today, according to The Australian Financial Review.
In mining, BHP Billiton has tried its best to hose down speculation that it could offload its struggling aluminium and nickel divisions. The mining giant has fused the two units together and rejected any suggestion that it could sell them. It looks like the arms are small enough for BHP to be able to ride out the depressed commodity prices, then it will be able to expand them when the price chart turns.
Meanwhile, Leighton Contractors has been selected as preferred contractors for Fortescue Metal Group’s Solomon iron ore project in the Pilbara. Leighton is expected to discover whether it has secured the lucrative five-year deal in June.
BREAKFAST DEALS: Rupert's retreat
News Corp doubles its share buyback program in the wake of the BSkyB failure, while James Packer keeps working away at Echo.
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