BREAKFAST DEALS: Ruralco's selective breeding

Elders shuts the farm gate on advances from Ruralco, while Goldman returns the volley to Nine over the company's debt pile.

Ruralco and Elders have reportedly had some early merger discussions, but the latter wasn’t too impressed by the former’s lack of detail. Can they be talked into a second date? Meanwhile, Goldman Sachs has fired back at Nine Entertainment with a letter of its own. Elsewhere, Woolworths looks like it’s gonna raise, Arrium has support from its register to tell Steelmakers Australia off and there’s a Green who has an interesting take on a Medibank Private float.
Ruralco, Elders
Australia’s number two farming services company Ruralco has reportedly put a merger proposal to rival Elders that would create a $500 million player.
The Australian Financial Review reports that Ruralco chairman Richard England explained the proposal in a letter to Elders chairman John Ballard. The proposal, sent last month, was rejected. England says Elders claims there wasn’t enough detail.
"Yes, we have [approached them]…They have declined to engage,” he told the newspaper.
Apparently, the talks between the companies first started with an initial meeting between the chief executives – Ruralco’s John Maher on one side and Malcolm Jackson of Elders on the other – a few weeks before the letter.
That would put us in mid-September at the earliest, probably earlier.
Just a few weeks prior, Elders was dismissing suggestions that the divestment of its automotive division, Futuris, was designed to make the company more appealing to a suitor or merger candidate.
"Unfortunately, when you do these things, suddenly one plus one becomes five," Jackson said at the time.
Nine Entertainment, CVC Asia Pacific, Apollo Global Management, Oaktree Capital
Nine Entertainment mezzanine lender Goldman Sachs has reportedly written to the board warning the directors of their personal liability in the event that the investment bank is treated unfairly.
That’s the way a lender is supposed to behave! Yesterday we had the strange situation of a debtor telling its lenders to get it together.
Nine threatened to try to sell the company – almost an impossible task given the February debt deadline – or throw the company into receivership.
It’s all part of attempts by Nine and Goldman Sachs to rekindle negotiations with the main senior lenders to Nine’s $2.2 billion debt pile, Apollo Global Management and Oaktree Capital. In person talks fell apart last week.
Nine’s lawyers at Golbert Tobin would be keeping the company’s directors, headed by chairman Peter Bush, well aware of their duties as they enter a period that’s frequently troublesome for company boards – ownership transfer under the shadow of receivership.
Speaking of Woolworths, keep an eye on supermarket giant this morning for a possible $500 million capital raising.
Media reports indicate that Woolworths, advised by Moelis & Co and Citi, is lining up a capital raising and in specie dividend for its plans to float a $1.4 billion property spin-off.
It’s basically the same plan that Westfield Group went for when it demerged Westfield Retail Trust in late 2010. Citi also had a hand in that one.
The Australian Financial Review expects Woolworths to announce the capital raising for the 70 centre property spin-off today.
The newspaper says Citi is acting as underwriter and manager, and was briefing fund managers last night about the proposal.
Arrium, Steelmakers Australia
Steelmaker Arrium has reportedly received some sound support from two of its largest shareholders for its decision to reject a $1 billion takeover offer from an Asian consortium.
Good thing too. Business Spectator’s Alan Kohler writes that the board should demand a price "at least twice” what’s been tabled.
"If the bid succeeded at this price, the Korean consortium would be getting a global mining supplies business cheaply and an iron ore mine, port and national steel business for nothing,” Kohler writes.

"It’s not well understood that Arrium is now mainly a company that is the world’s leading supplier of the balls for grinding mills. It’s a strong business that makes about $200 million a year profit from this and would be valued at 10 times that if it were standing alone.

"But it is connected to a steel business that has been beaten up by the exchange rate, and an iron ore mine that is out of favour because of the recent fall in the iron ore price.”
This is the territory that the bidding consortium, Steelmakers Australia, is trying to fight this on – the iron ore price.
Steelmakers Australia, led by Singapore-listed trading house Noble Group and South Korea’s POSCO, indicated yesterday that it probably wouldn’t return to its offer until the Australian market began to appreciate the iron ore market has fundamentally changed.
According to Fairfax a spokesperson for Steelmakers said: "We think the outlook for iron ore is around the current level, not returning to levels seen in the first half of the year. The market is still taking this fundamental change on-board.”
If that’s really their case, then there’s no rush. The Australian understands that Government of Singapore Investor Corporation and Dimensional Fund Advisors, which hold about 11 per cent of the company once known as OneSteel, are right behind the board.
"We have got the very strong support of all of the major shareholders over this," said one source the newspaper describes as "close to Arrium”.
So with the suitor apparently confident that the target is under a misunderstanding and the target’s receiving strong word from its register to stand firm, the logical conclusion is that we should wait to see what the iron ore price does.
Medibank Private
The Greens still haven’t "settled on a view” when it comes to the potential privatisation of Medibank Private, but they believe Labor might be up for it.
Greens health spokesperson Richard Di Natale made the comments to Fairfax, saying that he "wouldn’t be surprised” if either of the major parties put Medibank up for sale.
This is an interesting suggestion because all the speculation surrounding any sale of Medibank has been told through the prism of the next Coalition government.
Shadow Treasurer Joe Hockey put the idea on the table in 2010 and broad estimates suggest that Medibank, with about a third of the health insurance market, could be worth about $2 billion.
Currently, Labor’s policy is to keep the insurer, which will pay about $850 million in dividends in three years, in public hands.
This puts the Greens front-and-centre because they’d likely hold the balance of power in the Senate during a Tony Abbott government.
However, given the potential for Labor to support a Medibank float, or even the once unthinkable notion of Julia Gillard’s improving popularity carrying the ALP over the line next year – I know, just saying it sounds strange and definitely premature – the dynamics of this discussion could shift wildly.
Echo Entertainment
Echo Entertainment chairman John O’Neill has opted for a stabilising figure to fill a vacant board seat as the company tries to get its bearings, while billionaire stalker James Packer waits for the regulators.
Echo has appointed former Business Council of Australia boss Kate Lahey to the board, replacing long-time director Brett Paton, who stepped down a day before the departure of chief executive Larry Mullins was announced.
Lahey is currently managing director of recruitment firm Korn/Ferry International and will probably be a much needed soothing influence on the Echo board.
The company is at a crucial juncture. With Packer and Malaysian billionaire KT Lim seeking a greater slice of the company, the Echo directors will have to manage the ongoing efforts to realise the company’s casino plans in Sydney, while being ever watchful of efforts by the billionaires to shift Echo’s path to their own end.
Coincidentally, David Jones is replacing one of the board seats vacated by Lahey earlier this year.
The department store has appointed former PricewaterhouseCoopers partner Jane Harvey to the board that Lahey left. Former finance director Stephen Goddard, deputy chairman John Coates and former Woolworths chief Red Clairs, have also departed the board in 2012.
Wrapping up
Gas pipeline company APA Group has extended its $1.4 billion takeover offer from Hastings Diversified Utilities Fund for another two weeks, having an aggregate interest in the target of 47.4 per cent.
Last month, the company announced that it would waive the minimum acceptance (the last condition left) when its relevant interest hits 50 per cent.
Meanwhile, APN News & Media poured cold water on speculation that its New Zealand assets were about to be told with a statement that was pretty direct: "APN confirms that the strategic review is ongoing, however it has nothing to announce at this stage.”
Elsewhere, The Australian Financial Review expects Leighton Holdings to distribute a deal timetable for the sale of its telecommunications assets within a week, with an information memorandum to follow not long afterwards. Macquarie Capital is handling the proceedings.
Interestingly, the newspaper reports that expectations of a $1 billion pricetag for the Nextgen Networks, Metronode and Infoplex business could effectively count out iiNet and M2 Telecommunications.
And finally, coal producer Cockatoo Coal jumped more than 30 per cent yesterday amid speculation that the company is in talks again with South Korea’s SK Networks.

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