BREAKFAST DEALS: Spotless tidy-up

Spotless Group is expected to announce a deal with PEP, while a mystery suitor courts PMP.

Spotless Group, it appears, has finally been wiped. Reports indicate that a deal has been done with private equity group Pacific Equity Partners. It wasn’t the $2.80 target that chairman Peter Smedley was looking for, but he held out as long as was feasible. Speaking of private equity, could one group be behind the mystery bid for PMP that sent the printing company’s stock skywards? Elsewhere, Gina Rinehart has another backer for the Roy Hill iron ore mine, Sundance Resources has a Cameroon finish line in sight and some of Nine Entertainment’s original lenders are preparing for the worst.

* This column was written prior to Spotless Group's acceptance of a $2.71 offer from PEP.

Spotless Group, Pacific Equity Partners

Spotless Group is expected to announce this morning that it has come to an agreement with Pacific Equity Partners that values the company at $711 million. Reports indicate that Spotless will recommend an offer of $2.71 a share – $2.62 in cash, plus the previously announced fully-franked 5 cent dividend as well as a new special dividend of 4 cents, franked to 94 per cent.

Spotless and PEP apparently abandoned plans to sell the target’s struggling Braiform business and return money to shareholders, or to set up a deferred payment obligation for PEP. Such news isn’t a great surprise given that the cash offer was still in their calculations late last week, even though the theoretical value was lower.

Indeed, the $2.71 figure doesn’t meet the $2.80 minimum that Spotless chairman Peter Smedley set about three months ago. But it’s been almost a year since Spotless rejected the $2.50 offer from another private equity player, Blackstone. That’s a long time to be on the defence and given that this proposal is 21 cents a share higher than Blackstone’s offer, Smedley can rest assured that he fought a good fight.

Goldman Sachs advised Spotless, while Investec and Citigroup assisted PEP.

PMP

PMP shares surged a scarcely believable 148 per cent to 37 cents a share on Friday thanks to a conditional, non-binding proposal from an interested party that remains unnamed. PMP said that a mystery buyer has delivered an indicative proposal of between 68 cents and 78 cents a share, valuing the company at up to $252 million. Given PMP shares were changing hands at 25 cents the previous day, investors were… enthusiastic.

It’s expected that the interested company is an international trade buyer or private equity firm. But that’s about as far as we’ve got. The Australian Financial Review understands that CHAMP Private Equity’s Blue Star has been swimming around in recent weeks, but nothing more. Private equity isn’t exactly known for offering such eye-popping premiums, but given PMP rejected an offer of $1.95 to $2.15 a share five years ago from a similarly unnamed buyer, it’d be easy to find value.

Hancock Prospecting, POSCO

Taiwan’s largest steel maker, China Steel Corporation, has snapped up a small $300 million stake in Gina Rinehart’s Roy Hill iron ore project. South Korean steelmaker POSCO told its market it had sold 2.5 per cent of its 15 per cent stake in Roy Hill to China Steel for 359.9 million won ($300 million).

China Steel was mentioned as a potential stakeholder when Roy Hill deals – the ones that ultimately gifted Rinehart her $20 billion net wealth valuation – were first being drawn up. But only POSCO, fellow Korean company STX and Japan’s Marubeni emerged winners. Now that China Steel has managed to get a foothold, it only expands the list of solid investors backing Rinehart’s project.

Sundance Resources, Sichuan Hanlong Mining

Sundance Resources had to tell the market something on Friday and it came through. The miner said it has agreed on key terms of the Mbalam iron ore project with the Cameroon government, adding that only some minor details need to be sorted until a formal agreement can be signed. The final signatures should follow in coming weeks.

The Cameroon agreement is crucially important to Sundance, as it’s one of the conditions of a 1.4 billion takeover offer from China’s Sichuan Hanlong Mining. The market has maintained scepticism towards the deal, with ongoing doubts about whether Hanlong will be able to find the money it. Hence the stock has been trading beneath 47 cents – a big discount to the 58 cents deal from Hanlong. Although it should be said the stock has crept up over the last month.

Nine Entertainment, CVC Asia Pacific

Nine Entertainment might have booked a hit with The Voice, but movements amongst its debt owners show owner CVC Asia Pacific will have to hit every note right if it hopes to hold the media company. The Australian understands that a group of about half a dozen of Nine’s original lenders, including Dutch lender Rabobank and Germany’s WestLB, have retained Rothschild as an advisor in the event that Nine undergoes a radical restructuring. CVC has to refinance $2.7 billion in debt by February next year.

This group of half a dozen lenders or so reportedly represents about $300 million of Nine’s debt. That mightn’t sound like a lot. But when you consider that Apollo Global Management and Oaktree Capital have snapped up almost $1 billion in Nine’s debt, it means almost half of CVC’s debt is held by parties expecting a restructuring or actively trying to bring it on.

Macquarie Group

Macquarie Group chief executive Nicholas Moore has poured cold water on the idea the investment bank could use acquisitions to find much-needed growth. Moore made the comments after the investment bank reported a 24 per cent drop in full year profits to $730 million, which left investors more concerned about overhead costs than M&A opportunities.

That appears to put a bullet in quite consistent reports linking Macquarie to the sale of ING’s Asian asset management business, worth something in the order of $575 million. "There are less opportunities out there than we saw than during the crisis,” Moore said late last week. "Things have basically re-priced to a level where we don’t see exceptional returns in the market the way we saw with the motor leasing portfolio.”

Wrapping up

Telstra, the AFL and the NRL had a win on Friday with a successful appeal to the Federal Court against Optus and its TV Now service. Optus was none too pleased and left the door wide open for an appeal to the High Court. The Optus service exploits the legal system’s slow reaction to technology and many believe taking this to the highest court in the land has a real chance of success. The only thing that’ll put this to bed is a modernisation of Australian copyright law and in the meantime, Telstra’s deal with the sporting codes is not quite secure.

Leighton Holdings is taking indicative bids for its Thiess Waste Management business today, according to The Australian Financial Review, and the price tag is up to $300 million. The joint venture between France’s Suez Environment and Singapore’s Sembcorp Industries, SITA, is expected to be in there, along with Archer Capital. Meanwhile, The Age reports that Fortescue Metals Group chairman Andrew Forrest has brushed off rumours that Russia’s Magnitogorsk Iron & Steel is thinking of selling down its 5 per cent stake.

The Australian Financial Review reports that FKP Property Group will probably fuse its three retirement platforms into a single arm to make the $1.5 billion portfolio more attractive to anyone interested. And finally, Gloucester Coal shareholders will vote on the proposed $8.1 billion merger with Yancoal Australia on June 4.

Related Articles