BREAKFAST DEALS: Seven's heaven
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Kerry Stokes, Seven Media Group, West Australian Newspapers
The Australian media sector looks set for a radical shake-up with media and earth moving baron Kerry Stokes reportedly getting ready to merge Seven Media Group with West Australian Newspapers (WAN). According to The Australian Financial Review, Stokes is set to pull the pin on the $3.5 billion deal today with WAN set to raise up to $1 billion in capital – with the help of UBS and JP Morgan – to help fund the transaction. Meanwhile, The Australian reports that the deal – a related party transaction subject to a vote by WAN shareholders – could be worth $5.4 billion and The Sydney Morning Herald has its own take, valuing the transaction at $4.1 billion. Either way it's going to be the biggest deal in the local media scene since 2006 and will see US private equity giant Kohlberg Kravis & Roberts (KKR) reduce its 45 per cent stake in the group – which includes the Seven Network, Pacific Magazines and Yahoo7. KKR, which paid $735 million for its stake in 2006, has been looking for a way out for some time and while there was talk that the private equity giant was angling for a float, it looks like Stokes has opted to roll the media joint venture into the publicly listed WAN. KKR will reportedly hold a 15 per cent stake in the new entity, while Seven Group Holdings will hold a 30 per cent stake. A 70 year old Stokes is expected to remain the chairman of the new entity while Seven Group chief executive David Leckie is reportedly set to be its CEO. The AFR adds that WAN will also borrow close to $2.5 billion to fund the takeover. A lot will depend on whether WAN shareholders are happy to give their tick to the transaction, which will see WAN issue shares to KKR and Stokes' Seven Group. The $2.5 billion dollar debt is likely to scare a few shareholders but the merger does open up an opportunity to diversify its earnings base and presence in the sector. Seven Group currently holds a 24 per cent stake in WAN but that shouldn't come into the equation when WAN shareholders vote – and while the merger reportedly has the blessings of WAN's independent directors it's the shareholders who will need to be convinced. Given the size of the deal and the controversy in some quarters about the Seven/Westrac deal a year ago, proxy advisor groups and corporate governance experts will no doubt take a close look at Stokes' latest play.
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Consolidated Media Holdings, Foxtel, Austar
Stokes's move to unite his media interests under the WAN umbrella is the biggest play in the wave of consolidation currently underway in the media sector and there is growing consensus that it may not be his last. The drums are beating pretty loudly about a possible heavyweight merger between Pay TV operators Foxtel and Austar and Stokes will have a say in what eventuates there. Stokes' Seven Group Holdings owns close to a 22 per cent of Kerry Packer's Consolidated Media Holdings, which holds a quarter of Foxtel. The rest of the local Pay TV giant is shared between Telstra Corporation (which holds a 50 per cent stake) and News Limited and there is talk that all three shareholders are mulling a potential tie-up. While it's too early to make a call on how that pans out, analysts have pointed out the strong strategic rationale behind the move. A Foxtel-Austar combo will hold a whopping customer base of over 2 million and will also generate significant cost savings.
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Fortescue Metals Group, Rio Tinto, BHP Billiton
Moving to the mining sector, there's news on all three iron ore giants – BHP Billiton, Rio Tinto and Fortescue Metals. We start with Fortescue whose boss Andrew Forrest is again on the wrong side of his long-running stoush with the Australian Securities and Investments Commission (ASIC). The corporate regulator, which alleges that Forrest and Fortescue had made misleading claims to shareholders about non-existent infrastructure deals, was successful last week in overturning an earlier court dismissal of its case against the miner and its boss. Fortescue does have the option to appeal the decision in the High Court of Australia but for the time being the miner faces a maximum civil penalty of up to $6 million and Forrest is in line to lose $4.4 million. Even more importantly, Forrest also faces a ban from acting as a company director. The court tussle soured what would have otherwise been a good day for Fortescue, given that the miner posted a seven fold rise in its half-year earnings from $43 million to $314 million and declared a maiden dividend payment of three cents per share. A confident Fortescue also declared that it was looking to diversify out of iron ore in the Pilbara and into coal in Mongolia. Fortescue executive director Russell Scrimshaw has told the media that the miner had submitted an expression of interest for the Tavan Tolgoi coal deposit in Mongolia. Now to Rio Tinto and news that the mining giant is on the cusp of boosting its exposure to uranium with a joint venture with Africa-focused Extract Resources. According to The Australian Financial Review, Rio is in talks with Extract and its 40 per cent shareholder Kalahari Uranium to seal a joint venture deal. A possible JV will see Rio incorporate Extract's Rossing South deposit to its adjacent Rossing mine. Macquarie is reportedly advising Rio Tinto with Rothschild advising Extract and Azure Capital working with Kalahari. Meanwhile, Rio Tinto's UK shareholders don't seem overly enamoured with the mining giant's $US5 billion share buyback plan, with some telling the UK's Sunday Times that the move was "pathetic”. The size and timeframe of the share buyback was never going to make everyone happy so no surprises that some investors are hankering for a greater reward. Finally, BHP Billiton boss Marius Kloppers was once again on the front foot with the "organic growth” agenda over the weekend but a dive back into M&A activity is not entirely out of the picture. Kloppers told ABC's Inside Business that takeovers are expensive at the moment but the miner will switch into M&A mode if market dynamics change. While he admits that an iron ore acquisition will be hard to get through a regulatory gauntlet the oil and gas sector has been clearly labelled as the area of choice. Analysts have pointed out US operators Cobalt International Energy, Plains Exploration & Production Company, Noble Energy and Anadarko Petroleum as likely targets. However, the trouble is that the companies don't entirely fit BHP's bill for Tier 1 assets. That leaves Woodside Petroleum as the big fish that Kloppers and BHP could target sometime this year.
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Crane Group, Fletcher Building
Takeover target Crane Group's shareholder Peter Crane, has refused to lie down in his fight against suitor Fletcher Building, urging Crane Group shareholders to reject the Kiwi company's $800 million offer. Crane, a member of family that founded Crane Group, unveiled his dissent earlier this month through a website and a YouTube video and has since continued to voice his concerns about the takeover being a ploy by Crane Group's management to avoid responsibility for the company's underperformance in the last five years. Meanwhile, Fletcher Building has extended its takeover bid for Australian company Crane Group by two weeks after getting the all clear from the Foreign Investment Review Board. The offer will now close on March 11 and it's probably a good move by the suitor given that it has so far reportedly only secured 22 per cent of acceptances from institutional and retail investors. That coupled with the fact that Peter Crane's message may be finding some support among shareholders would indicate that the deal is still far from secure. Peter Crane holds a 1.5 per cent stake in Crane Group.
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Wrapping up
Australia's largest privately owned private hospital operator, Healthe Care, is reportedly on the block with its private equity owner CHAMP Venture staring an informal sales process. CHAMP had originally planned to float the business but the AFR reports that it has changed its mind after receiving interest form a number of parties including, private equity heavyweight Blackstone and Catholic health care group Little Company of Mary Health Care. Healthe Care operates nine private hospitals in the east coast, several of which were spun out off Healthscope and Ramsay Health Care. Meanwhile, the $127 million takeover of Tully Sugar looks dead in the water with international suitor Bunge's bid shown the door by 13.5 per cent shareholder Queensland Sugar Limited. The takeover deal was subject to a shareholder vote with regards to the removal of a 20 per cent shareholding cap. Unfortunately for Bunge, the vote failed to get the 75 per cent support with marketing company Queensland Sugar playing the spoiler. There is talk that Queensland Sugar is much more inclined to back an impending bid by rival sugar operator Mackay Sugar. Elsewhere, buildings materials group Boral's boss Mark Selway has talked up his $1 billion war chest, telling The Australian that he was on the lookout for a major acquisition in the US. Boral has made a number of small US acquisitions in recent times and Selway reckons that a stronger Australian dollar makes now a good time to look at bigger assets. In overseas news, bourse operators continue to join forces at a furious pace with US-based BATS Global Markets announcing plans to take over peer Chi-X Europe, in a deal that could put even more pressure on the dominance of national bourses. Elsewhere, Brazil's BM&F Bovespa is reportedly in talks with China's Shanghai Stock Exchange. According to Reuters, Bovespa and the Shanghai Exchange are set to sign a memorandum of understanding to discuss business opportunities. Finally, Maureen and Tony Wheeler, the founders of Lonely Planet, have sold their remaining 25 per cent stake in the travel guide publisher to BBC Worldwide for £33 million ($A53.2 million), according to Crikey.com.au. The departure of the Wheelers breaks a 39-year relationship with the Lonely Planet group. The couple sold three quarters of the business to the BBC in 2007, for £89.9 million.
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