BREAKFAST DEALS: Steel ties

It's tough out there for our local steelmakers and while a merger between OneSteel and BlueScope Steel may not be imminent, a rising Australian dollar and tougher conditions ahead may leave them with no choice. Meanwhile, Qantas' premium Asian airline could still find a home in Malaysia as the airline unveils a radical revamp of its international operations. In other news, James Murdoch looks set to face another public grilling as new hacking allegations emerge, Gina Rinehart trims her stake in the Ten network, a UK software provider appears as the leading contender for MYOB and Perpetual says goodbye to Ireland. Elsewhere, Macarthur Coal spruiks its growth potential and Mako Energy grows from strength to strength in Canada.

OneSteel, BlueScope Steel

Australia's two big steelmakers – BlueScope Steel and OneSteel – have never had it so tough, with a strong Australian dollar, higher raw material costs and low margins cutting into their value. Bluescope got the ball rolling last week, flagging a $900 million write-down and possible job cuts at its Port Kembla operations, and OneSteel's full-year profit numbers didn't make happy reading either. The company posted a 6 per cent drop in underlying full-year profit and is set to cut steel production and more than 400 workers. The local manufacturing division was a particular disappointment as it slumped to a $185 million loss, but the one big positive for OneSteel was its iron ore mining business. With both steelmakers under the pump, it's hardly surprising that talk of the two tying the knot (combining BlueScope's bigger Port Kembla blast furnaces with OneSteel's iron ore supply) at some stage have grown stronger in recent times. While OneSteel boss Geoff Plummer has hosed down speculation of an imminent tie-up he hasn't ruled it out, especially if conditions continue to deteriorate. Plummer's reticence about the merger stems from the fact that the two businesses are very different and he has a point. OneSteel has a far greater exposure to a turnaround in domestic steel demand and focuses on building long products used in construction and infrastructure sectors, while BlueScope specialises in hot-rolled coil and coated steels, which it sells to export markets. The issue might not be as cut and dry as combining the blast furnaces of the two steelmakers but consolidation may be the key to surviving the tough market conditions, especially if the world is headed for a lengthy slowdown. OneSteel's latest results have been largely boosted by iron ore sales with the core steel-making business in trouble. The tipping point for OneSteel's Plummer could come down to the Australian dollar, which is widely expected to continue outperforming the greenback in the near-term. With a resurgent dollar and the domestic steel business facing significant headwinds, a merger could still very much be on the cards.

Qantas Airways

Even as Qantas boss Alan Joyce laid bare his vision of the future, unions were getting ready to hit back at the airline with legal action. Their ferocity was entirely predictable given that the new-look Qantas comes at the price of 1000 jobs. Qantas reportedly spent close to $2 million in one day on the advertising blitz that preceded the announcements yesterday. The wrap-around ads on The Age and The Australian, along with the pages on the Herald Sun and The Australian Financial Review were designed to soften the PR backlash that the airline knew would follow, but given the frightening outlook of Qantas' international business – which is losing $200 million a year – presented by Joyce, it's hard to argue that the airline needed a radical revamp. That's exactly what Joyce has presented with the launch of two new airlines in Asia and the order for $9 billion worth of new Airbus aircraft. So a full-service premium Asian airline is set for launch and its budget arm Jetstar has sealed its deal with Japan Airlines and Mitsubishi. Meanwhile, the push to Asia will see Qantas hand over some of the European services to British Airways with the airlines enhancing their long-standing Joint Services Agreement partnership to strengthen their Singapore hub. Qantas is set to invest $300 million into the venture, which will not carry the Qantas name. Instead, we are looking at a Pan-Asian brand which Qantas is hoping will deliver benefits by increasing frequency for corporate customers flying in and out of Asia. The one thing that we are still waiting to see is just where the new premium airline is going to be based. Singapore is seen as the most likely port of call given Qantas' existing presence there but Kuala Lumpur is still in the picture and there are some who reckon that Joyce may be quite keen on Malaysia after he talked up Qantas' close relationship with Tony Fernandes, the boss of low-cost airline AirAsia, which last week took a cornerstone stake in Malaysia Airlines. Qantas' five-year plan will no doubt face a lot of scrutiny given the number of jobs that are on the block but the airline will press the point that, at this point, it really has no other alternative and the loss of 1000 jobs may be a necessary sacrifice to ensure the survival of others.

James Murdoch, News International, Gina Rinehart

The News of the World phone hacking scandal continues to provide plenty of headaches for the Murdochs and joy to their detractors and it looks like James Murdoch, and possibly his father Rupert Murdoch, may have to face another public grilling from British MPs. James has been busy defending allegations that he was less than truthful to a parliamentary select committee the first time around but the latest revelations from NOTW's disgraced royal correspondent Clive Goodman have thrown the entire Murdoch defence into jeopardy. According to Goodman, hacking was an open secret at the paper and was often discussed at editorial meetings. The letter by Goodman was written four years ago but has only surfaced now to reinforce the claims made by former News International executives Colin Myler and Tom Crone. We will have to wait and see just how incendiary the effect of this letter will be on the Murdochs but James is almost certainly set for another round under the microscope.

Staying in the media sector, Ten Network Holdings' prominent shareholder Gina Rinehart has sold 1.19 million Ten shares over the past six days, leaving Australia's richest person with an exact 10 per cent stake in the media company. The move to sell the shares at 93 cents a share is puzzling, given that most analysts have put a target price of 94 cents on Ten, but The Australian reports that the move may have been designed to ease regulatory scrutiny of her media investments, which include a four per cent stake in Fairfax Media.

MYOB, Archer Capital

The race for accounting software maker MYOB is likely to be tight, with UK software provider Sage Group identified as the fourth suitor looking to snare the prize away from private equity operators Bain Capital, Kohlberg Kravis and Roberts and Hellman & Friedman. According to the AFR, Sage is in fact seen as the leading contender and a final sale price of between $1 billion - $1.2 billion looks to be on the cards. In other private equity news, the world's largest resources-focused private equity group, Resource Capital Funds, is close to completing the strategic review of its magnesia business in Queensland and the AFR reports that a trade sale is looking like the most likely option.

Perpetual

After months of fending off questions about the future of start stock picker John Sevior at Perpetual, the wealth manager's new boss Chris Ryan finally had something new to talk about. Perpetual has reaffirmed its full-year profit guidance and Ryan has announced plans to close the firm's Dublin-based international investment operation, to move the group out of active international equities management. The management of the operations will now be taken over by Boston-based Wellington Management, which will look after $900 million in funds. Perpetual expects to save $7 million a year after tax from the move.

Wrapping up

Macarthur Coal has finally gone on the offensive against its suitors Peabody Energy and Arcelor Mittal using an investor update on its operations to deflect criticism that its management has failed to maximise the potential of the miner. The update was all about highlighting Macarthur's growth prospects in what can only be an attempt to show potential counter bidders why they should come in to challenge Peabody and Arcelor Mittal. In other mining news, Owen Hegarty's Tiger Realm is not going to make its debut on the ASX today with the listing date pushed back to August 29 after the miner's offer ran into regulatory trouble. Elsewhere, Bandanna Energy has reportedly changed its tune and after a lengthy sales process, the coal miner may now be looking at a capital raising. Arrow Energy's plan to construct a multi-billion dollar LNG plant on Curtis Island off Gladstone has taken a major step forward with CJV, an international consortium comprising the Chiyoda Corporation, CB&I and Saipem, to start work on the front-end engineering design and Mako Energy and its ASX-listed joint venture partners, Transerv Energy and Kilgore Oil & Gas, have engaged Macquarie Capital as advisor with respect to the potential farmout or other disposition of all or a portion of their Duvernay and Rock Creek mineral rights in Canada. Mako is already in talks with interested parties keen to come in as partners on Rock Creek and Duvernay holds even greater potential with a deal there expected by September. Finally, Brambles has strengthened its presence in the aviation sector with the acquisition of New Zealand-based JMI Aerospace, which specialises in the maintenance and repair of non-flight critical equipment such as galley-carts and unit-load devices for airlines.