BREAKFAST DEALS: Seven's rebuff

Kerry Stokes looks unlikely to succeed in his bid for ConsMedia, while Fortescue takes shareholders on a bumpy ride.

What will Kerry Stokes do now? The ACCC says they need a better reason to let him take a slice of Foxtel. How does this change his hand against News Limited? Meanwhile Fortescue Metals Group has given shareholders whiplash with news that it’s talking covenants with its lenders. Elsewhere, Crescent Capital Partners is biding its time with ClearView Wealth, there’s disagreement aplenty over the value of Nine Entertainment and Qantas Airways has had the real extent of its competitive spirit with Virgin Australia exposed.

Seven Group Holdings, Consolidated Media Holdings, News Limited

From the beginning, News Limited’s offer for Consolidated Media Holdings and its 25 per cent stake in Foxtel was going to come down to Seven Group Holdings billionaire Kerry Stokes.

The Australian Competition and Consumer Commission has probably reduced his leverage over the exchange, which stems from his 24 per cent stake in CMH.

The consumer watchdog has given Stokes four more weeks to make a case as to why he should be allowed to table a counterbid for News Limited’s $2 billion offer, but Rod Sims’ concerns run deep and they’re about sport.

"The ACCC considers that the proposed acquisition has the potential to cause a substantial lessening of competition in the FTA (free to air) market by limiting the ability of Seven Network's rival FTA channels to effectively bid for premium sporting rights,” the ACCC said.

The consumer watchdog will hand down its final decision on October 11. But it's unlikely to be radically different to the sentiments expressed above.

As Business Spectator’s Stephen Bartholomeusz writes, channels Nine and Ten can’t afford to bid for sports rights deals without the support of Foxtel. If Seven gets a hold of 25 per cent of Foxtel, Stokes could wield too much influence over future outcomes.

But if you flip the ACCC’s statement around the other direction, this is a warning to Foxtel and its owners News Limited and Telstra Corporation.

The consumer watchdog is saying quite clearly that it would be just as concerned if the proposal was coming the other way, with Foxtel trying to link up with one of the FTA networks.

This is not so farfetched. Remember those reports that said Telstra was sizing up Nine Entertainment? While the telco dismissed the idea, Telstra’s desire to secure content in the digital age is real. Snapping up one of the FTA networks is a good way to go about it.

Indeed as Bartholomeusz writes, there have been consistent rumours that Foxtel is interested in picking up Ten Network, which has a market cap of just $517 million.

But back to Stokes. Where does this leave him?

If he’s unsuccessful in persuading the ACCC to drop its concerns the media mogul has two choices.

Firstly, he can try to negotiate some kind of concessions from News Limited to secure a foothold of some kind in the pay TV market. Details on this suggestion so far have been sketchy.

Secondly, Stokes can hold out for an improved proposal from News Limited, which was recently reduced to $3.45 a share from $3.50. The risk here is that he overplays his hand and ends up a minority shareholder in CMH – something that Seven and News Limited don’t want.

Fortescue Metals Group

Iron ore miner Fortescue Metals Group has taken shareholders on quite a ride.

No sooner had the unexpectedly quick rebound in iron ore prices provided some much needed cover for the share price, a media report circulates that Fortescue is asking lenders to waive covenants on its $US11 billion loans.

The stock plunged 14 per cent on the news, more than wiping out the gains from the previous session that appeared to ease concerns that founder Andrew ‘Twiggy’ Forrest would be forced into a capital raising.

Last night, Fortescue said it is "in the process of talking to its lenders” (as opposed to just talking) "about potential waivers in the event that covenants are put under pressure”.

The severity of the share price plunge is undoubtedly due in part to the growing influence of hedge funds on the Fortescue register, but waiving covenants is a big deal.

One of the crucial pieces of the original media report was that Fortescue approached the banks on Thursday last week. That was before signs of an iron ore prices recovery, which are admittedly in their very early stages, emerged.

Fortescue should inform the market about when it began discussions with its lenders to give the market some context. The further the iron ore price gets away from those levels, the less the market and Fortescue’s lender, will be concerned about the covenants.

ClearView Wealth Management, Crescent Capital Partners

Private equity group Crescent Capital Partners has extended its $245 million bid for mid-tier life insurer ClearView Wealth Management until September 28.

The bid was due to expire today, but Crescent appears to have bought another two weeks to see if it can secure a greater slice of the company.

There isn’t any play out of this, near-majority shareholder Guinness Peat Group wants out after an improved offer of 59 cents a share was lodged.

But the independent directors of ClearView weren’t as impressed by the offer, arguing that it was inadequate and didn’t reflect fair value.

This is leaving the real possibility that control of ClearView will change hands but the company will remain listed with enough shareholders staying in.

Nine Entertainment, Goldman Sachs

Unsurprisingly, the counter-proposal that US hedge funds have lodged with Goldman Sachs and CVC Asia Pacific over Nine Entertainment has not gone down well.

The main hedge funds Apollo Global Management and Oaktree Capital weren’t satisfied with Goldman’s original proposal that gave 70 per cent of Nine to the lenders and 30 per cent to itself and CVC.

The hedge funds further argued that they believed Nine had been overvalued by Goldman and proposed a deal that would wipe out CVC.

Guess what? Goldman has flat out rejected the hedge fund deal on the basis that it undervalues Nine.

"The proposals are at extreme ends of the spectrum," one source said, according to The Australian.

The question of value is where this debt-for-equity swap deal will hinge. The higher Nine’s agreed value, the lesser the extent CVC will be wiped out of the equation. The lower it is, the more the hedge funds will secure.

Qantas Airways, Emirates, Singapore Airlines

The Australian Financial Review has a fantastic story this morning illustrating just how hard Qantas Airways is willing to hit back at emboldened domestic rival Virgin Australia.

The newspaper understands Qantas tried to break up Virgin’s alliance with the parent company of Singapore Airlines by going to the former’s parent company, Temasek.

The Singaporean investment company owns 56 per cent of Singapore Airlines, which Qantas has a strained relationship with.

The AFR says Qantas pulled out of the talks after it became clear Singapore Airlines management was still not interested in an alliance, and then it linked up with Emirates.

Interestingly, the newspaper believes Temasek is still open to the idea.

Wrapping up

How long should you roast a chicken for? The Australian Financial Review has heard that the information memorandum for Bob Ingham’s chicken business won’t go out to potential buyers until the end of September.

It was expected that interested parties were going to get a long by the end of this week. Investec Australia is running the show.

Meanwhile in resources, mining services contractor NRW has picked up a $133 million contract for work on Rio Tinto’s Cape Lambert port expansion.

The work will involve conveyor link earthworks, relocating water pipelines and rail formation earthworks, with one million tonnes of crushed rock used for pavement materials. It’s a 48-week contract.

And finally, LinQ Resources Fund mightn’t fulfil its delisting plan after all. IMG, LinQ’s largest shareholder with 17.5 per cent, has lobbed an offer of 70 cents a share or $80 million.

A few weeks ago LinQ announced plans to sell off its investments and return the funds to shareholders, which has now brought out a rival proposal.

Given the stock was trading at 50.5 cents before the announcement, investors might have reason to celebrate.

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