BREAKFAST DEALS: Sating Stokes

Reports are already emerging about how Kerry Stokes might throw his weight around in the sale of Consolidated Media Holdings to News Limited. Meanwhile in Canberra, Qantas Airways is lobbying the federal government hard to either prevent Etihad from taking a big stake in rival Virgin Australia, or allowing another player to take a slice of the flying kangaroo. Elsewhere, an Australian junior has forced Xstrata to reveal one of its copper assets in Papua New Guinea is up for sale, Billabong International shocks the market with a heavily discounted capital raising and APN News & Media moves on from Ten Network's EYE Corp.

News Limited, Consolidated Media Holdings, Seven West Media, James Packer, Kerry Stokes

As expected, Seven West Media billionaire Kerry Stokes is taking centre stage in News Limited's attempt to grab a greater slice of pay TV and James Packer's attempt to raise more money for his gaming ambitions.

Stokes has 24 per cent of Consolidated Media Holdings, which is majority owned by James Packer and owns 25 per cent of Foxtel. News wants it for $2 billion, although it's just an indicative proposal at the moment.

According to reports from The Australian Financial Review and The Australian, sources indicate that Stokes is unlikely to be pleased with an offer of $3.50 a share, and further is unlikely to offload the stake without securing some kind of strategic advantage.

For instance, Stokes could use his stake to secure additional channels on Foxtel, or could siphon off a part of Foxtel Sports Australia, which CMH holds 50 per cent of.

Packer has described the proposal as "fair” and will accept it in the absence of a superior offer. But CMH gave some indication of the jostling that will take place before a deal is done in its original statement.

"Were a transaction to proceed, it is unlikely to complete until the final quarter of calendar 2012,” CMH said in a statement to the market. In other words, it's going take us big guys a while to figure this out.

And separately, the AFR reports that CLSA analyst Digby Gilmour believes News' bid for CMH makes a subsequent bid for Ten Network more likely. The logic goes that Ten's free-to-air TV licence would work a treat for News when it comes to sports coverage if it secures Foxtel Sports Australia.

While Breakfast Deals would ask in return "more like than what exactly”, let's quickly evaluate the suggestion. Ten's current market value is $754 million, however it was worth over $1.1 billion at the start of last month.

Considering that kind of price chart, do you suppose that major shareholders Gina Rinehart, James Packer, Lachlan Murdoch and Bruce Gordon, who've all worn big losses recently, would be willing to part with their shares for anything less than a massive premium?

And given the Australian Competition and Consumer Commission's concern for the television market, it wouldn't be an easy sell to Rod Sims either.

Qantas Airways, Virgin Australia, Etihad Airways

Qantas Airways chief executive Alan Joyce has reportedly upped the ante in his opposition to Etihad Airways taking a greater stake in Virgin Australia.

According to Fairfax, Joyce and his fellow executives have been lobbying Canberra this week against letting Etihad take a sizeable chunk of Virgin – unless, of course, they let someone else do the same with Qantas. The newspaper says the airline believes that if the government allows Virgin to strengthen itself too much with foreign muscle, it could send the Australian airline under.

It should be noted from the outset that the furthest Etihad boss James Hogan has gone is to indicate that the company would be interested in going somewhere beyond 10 per cent, but is at the moment concentrating on getting permission to take more than 5 per cent.

"Etihad will cross-subsidise Virgin's domestic business with the specific aim of weakening Qantas,” Fairfax claims a report from Qantas says. "Virgin/Etihad will be able to flood the market with capacity until its competition is forced to significantly reduce its own operations or worse.”

Crucially, the media report doesn't indicate whether Qantas has nominated a limit that the government could opt for that would restrict this kind of behaviour from Etihad.

It's all part of an ongoing battle for Qantas to return its international operations to profitability, while protecting its profitable domestic arm from global players keen to muscle in.

The only other way out would be a buyout, for which there's been a lot of recent speculation about thanks to the airline's diving share price. At which point, we would unavoidably return back to a discussion about the Qantas Sales Act.

Xstrata, Highlands Pacific

A junior, ASX-listed company has stolen some of the spotlight from global giants Glencore International and Xstrata, as the two work towards the largest merger of the year.

Highlands Pacific, worth just over $100 million, is a junior partner with Xstrata for the Frieda River Project, a copper gold deposit in Papua New Guinea, which is currently the subject of a feasibility study.

Behind closed doors, Xstrata is reviewing which assets will be held on to as it looks to a $US65 billion ($63.8 billion) merger with the world's largest commodity trading house.

But Highlands has had to reveal one of the assets up for grabs, after announcing advanced negotiations with the PNG Sustainable Development Program.

Highlands told the market that Xstrata is thinking about exiting its stake as it reviews its suite of copper assets. Xstrata holds 81.82 per cent of the project, while Highlands holds the rest.

Unprepared, the Swiss giant confirmed to the market that it was looking for sellers, amid other reports that it's been speaking to Chinese players. The stake could go for $US650 million.

Billabong International

Billabong International founder Gordon Merchant made it clear he wouldn't sell the company to private equity for less than $4 a share. So, it's perfectly logical to say he'd be willing to purchase shares at $1.02. That argument is insultingly specious and here's why.

Just in February, the company knocked back an indicative proposal from TPG Capital, amid reports of other private equity players circling, for $3.30 a share.

Billabong announced a sale of about half its successful accessories brand Nixon in an attempt to repair the balance sheet. Since then, Billabong has ousted its chief executive, a company veteran, Derek O'Neil in favour of a consultant brought in to help solve their problems, former Target boss Laura Inman.

Billabong's situation has evidently deteriorated further in the last few months and Inman's problems are more severe than everyone thought.

Now chairman Ted Kunkel is going as well after announcing Billabong will raise $225 million six-for-seven non-renounceable entitlement offer at $1.02 a share.

The last closing price of $1.83 means this is a savage 44 per cent discount. This is by far the largest discount of the latest batch of raisings that have been portrayed as somewhat troubled Australian corporates raising capital while they can, just in case Europe goes to hell.

As Business Spectator's Stephen Bartholomeusz points out, just a few months into a job, Inman has but one chance to turn this company around.

APN News & Media, brandsExclusive

APN News & Media has given us an insight into what its plan B is after missing out on Ten Networks' EYE Corp.

The media and advertising company has forked out $36 million for an 82 per cent share of brandsExclusive, which is an online retailer. Basically it sells high-end clothes at a discount, with a free sign-up through your email or Facebook account.

If brandsExclusive, launched in 2009, hits certain performance targets by 2013, the total APN pays will represent a purchase price of seven to eight times EBITDA.

APN expects brandsExclusive to generate $70 million this calendar year and claims that it has over 1.8 million members, with another 70,000 signing up each month.

APN put its name forward in the sales process for outdoor advertising company EYE Corp, an asset of Ten.

However, it's since been said that CHAMP Private Equity's oOh!media has entered into exclusive negotiations with the television network.

It was said by one analyst that APN had a greater incentive to secure EYE Corp because it sold half its outdoor advertising business into a joint venture with Quadrant Private Equity. H

ence some onlookers, including this one, were curious to see how APN would react.

Wrapping up

Takeover speculation at Toll Holdings has gone quiet since Kohlberg Kravis Roberts started leaning towards a float of mining services company BIS Industries.

However, The Australian Financial Review reports that Toll management has "flagged a few potential acquisitions in Germany”, but added than nothing is happening too quickly. Stay tuned.

Elsewhere, while James Packer might be concerned about the movements of Kerry Stokes for CMH, his quest to secure effective control of Echo Entertainment has received a boost.

Major shareholder Perpetual has sold down almost 4 per cent of its stake to sit at 5.2 per cent.

The reason why Packer might find it advantageous is that Perpetual was one of the more vocal critics of his plan to unseat John Story (who no longer has a seat) and replace him with former Victorian premier Jeff Kennett. Future objections will be softer.

And finally, the Fairfax Media board is apparently no closer to finding some sort of peace agreement with 18.7 per cent shareholder and mining billionaire Gina Rinehart.

According to The Australian Financial Review, Fairfax chairman Roger Corbett held discussions over the phone with Rinehart and some additional Hancock Prospecting executives.

However, the paper says it's understood that Rinehart is still refusing to sign the editorial independence pledge charter.