BREAKFAST DEALS: Spotless finale?

Pacific Equity Partners edges closer to a conclusion on Spotless, while Qantas is busy with new engines and old plans.

It’s been five months since Pacific Equity Partners lobbed a proposal for Spotless Group and started off a tense battle for control of the cleaning services company. Now that PEP has reportedly given Spotless a revised proposal, will it be enough to persuade Peter Smedley? Meanwhile, Qantas boss Alan Joyce says Singapore is still a live option for his airline’s premium carrier idea, having just signed a $2 billion engine deal with GE Aviation. Elsewhere, Telstra boss David Thodey has dropped some more hints about how Telstra might spend the NBN deal money, Thakral Holdings is expected to knock back Brookfield Asset Management, and Allens Arthur Robinson has secured an international joint venture with eyes for Asia.

Spotless Group, Pacific Equity Partners

We should expect the Spotless Group takeover story to come to some sort of end this week, with a report saying the target is understood to have received a revised proposal. The Australian Financial Review reports that Pacific Equity Partners big guns Anthony Kerwick and Rob Koczkar travelled to Perth in order to sit down with steadfast Spotless chairman Peter Smedley last week. With due diligence out of the way, it’ll be interesting to see if PEP can be persuaded to increase its $2.68 a share proposal (Smedley wants $2.80, at least).

Private equity is not known for going hostile so many believe that PEP is unlikely to take their $2.68 a share (or whatever it’s been revised to) to shareholders. However, this has not been a typical private equity courtship. PEP has an option over 19.6 per cent of the register thanks to a deal with Investors Mutual, Lazard Asset Management and Orbis Investment Management. The AFR also points out that PEP did go hostile in its bid for Energy Developments.

We shall see.

Qantas, GE Aviation, American Airlines

It’s been a busy few days for Qantas Airways. Chief executive Alan Joyce told The Australian that Singapore is still an option for it to establish a premium, Asian-based airline. Joyce said the strategy is taking "a little bit longer than we originally thought” after talks for a joint venture with Malaysia Airlines fell over and Singapore Airlines was to some extent excluded. However, Joyce maintains that Singapore is still one of "a range of options” available to the Australian carrier.

The news comes just as Qantas secures the engines that will power its forthcoming fleet of Airbus A320-neos. Qantas signed a $2 billion deal with GE Aviation to secure at least 156 LEAP-1A engines, a new generation model from GE’s joint venture with France’s Safran Group. The deal is great news for Qantas, which spends around $4 billion a year on fuel, because the LEAP-1A is significantly more fuel-efficient than comparable engines.

Meanwhile, Qantas’ only US partner from the Oneworld Alliance, American Airlines, is reportedly the target of rival US Airways. American Airlines is currently in bankruptcy protection and US Airways has secured the support of the three most powerful aviation unions in America to bid for its rival. This columnist was recently on a connecting flight from New York to Los Angeles on the way to Melbourne on an almost deserted Qantas branded jet. A flexible US partner would come in handy.

Telstra Corporation

Telstra chief executive David Thodey has given some hint as to where the telco’s billions, not destined for a share buyback, might end up. Speaking to ABC TV, Thodey nominated cloud computing, media asset management and Asian expansion as possible growth areas due to the national broadband network.

Given that Thodey is looking for growth areas to invest those dollars, you can expect to see the odd story floating around about Telstra looking at this cloud computing company, or that Asian technology firm. Some believe Thodey’s background as an IBM executive might make cloud computing an area he’s comfortable putting serious money into. But it appears his clear preference is Consolidated Media Holdings and its stake in Foxtel.

Thakral Holdings, Brookfield Asset Management

Listed Australian property developer Thakral Holdings is expected to reject the $410 million proposal from Brookfield Asset Management early this week. Brookfield is happy with 70 cents a share, which is a 31 per cent premium to the trading price before the offer was announced. However, Thakral has an estimated net tangible asset backing of 96 cents a share and many onlookers expect the board to ignore Brookfield’s advances on that basis.

Brookfield already holds the majority of the Thakral family’s 43 per cent stake in the company thanks to a defaulted margin loan. Thakral itself is reportedly considering which defence adviser to adopt. The Australian Financial Review says Bank of America, Merrill Lynch, Macquarie, UBS and Greenhill Caliburn are in the mix.

Allens Arthur Robinson, Linklaters

The globalisation and ‘Asianisation’ of our major law firms has taken another step forward with the alliance between Australia’s Allens Arthur Robinson and Britain’s Linklaters. As of next month, the two law firms will put their Asian operations into joint ventures, which will give Allens more international work and Linklaters entry into the all important resources space.

Law firms have been slow to respond to the global economic power shift to the east. But they’re starting to wake up now. Late last year, Australian law firm Mallesons Stephen Jacques announced a groundbreaking international merger with King & Wood. What set the agreement apart is King & Wood is a Chinese law firm, whereas previous international alliances involving Australian firms have focused on the US and UK.

Origin Energy, Australia Pacific LNG

Origin Energy should consider selling a bit more of its stake in Australia Pacific LNG to fill a funding shortfall. That’s the opinion of Macquarie analyst Matt Nacard, according to The Australian. Nacard estimates that Origin is going to have to come up with another $800 million. Origin and its partner ConocoPhillips dropped their stakes from 42 per cent to 37.5 per cent earlier this year, with China’s Sinopec increasing its share from 10 per cent to 25 per cent.

All three companies are still to make final approval of the second processing unit that would increase annual production at the site to 8.6 million tonnes. It’s a $6 billion expansion and Origin will have to find some way of paying for it.

FIRB

The Australian foreign investment regulator approved $177 billion worth of investment in the 2011 financial year. The Foreign Investment Review Board’s annual report indicates that the mining industry is still the sector to watch, picking up 31 per cent of every dollar the board gave its blessing to. While most of the attention is on China’s investment in Australia, it remains in third position behind the US and UK. India has also emerged, coming in fifth on the list of big investors in Australia.

Wrapping up

The South Australian government has reportedly lent on international consultant group Investec to oversee the sale of SA Lotteries. The Australian says that Investec has won the tender for the sales process and is pushing ahead with it despite concerns that it could undermine the profitability of newsagents. The same newspaper also says that the federal government is going to announce a consortium led by Chris Corrigan’s Qube business is the winning bidder for the construction and operations contract for the freight hub in southwest Sydney.

Meanwhile, US giant Peabody Energy is hoping for big-time interest in its Wilkie Creek mine. Peabody announced the sale in January and UBS has been expecting some indicative proposals since then. The deadline for non-binding bids has been delayed until next Monday, according to The Australian Financial Review, with hopes that international and domestic bidders will put forward something compelling.

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