BREAKFAST DEALS: Stoking confusion

The market is puzzled by the prospect of Seven Network turning conglomerate, with speculation that pay TV will soon play a greater role in the Stokes empire.

TOWER Australia, Dai-ichi Mutual Life Insurance

Dai-ichi Mutual Life Insurance, the Japanese insurance giant behind TOWER Australia, is planning a $13.05 billion IPO to help reduce its reliance on the stagnant Japanese market. Dai-ichi, which bought its near-30 per cent stake in Tower from UK investment company Guinness Peat Group in 2008, is looking to list on the Tokyo Stock Exchange in April, after distributing its stock to policyholders. The 108-year-old company, which also has operations in India and Thailand, says it sees TOWER as a long-term strategic investment, and indeed its position as a cornerstone investor has probably protected the local life insurer from the consolidation activity enveloping others in the wealth management space. As the fourth-largest life insurer in Australia – behind National Australia Bank, Commonwealth Bank of Australia, and ING (ANZ Banking Group) – TOWER this month warned against further consolidation in the sector, arguing powerful large players can reduce choice and lift prices. Still, TOWER noted some consumer aversion to big bank domination of insurance, and says there is a place for independent players in a market where the top 10 companies account for more than 95 per cent of in force premiums. Beyond market consolidation, TOWER this month said claims over the four months to January were slightly higher than expectations, with higher incident rates for death claims. Still, with economic conditions and unemployment starting to stabilise, it expects claims to trend back in line with long-term assumptions later this year and says it is working towards an underlying profit for the 2010 fiscal year of between $82 and $92 million, close to current market analyst consensus. Elsewhere in insurance, NIB managing director Mark Fitzgibbon says the company is in talks with a number of parties, flagging a capital return should talks fall over.

Seven Network, WesTrac Holdings

There's been some puzzlement at the prospect of Seven Network going conglomerate through the merger with Kerry Stokes' earth moving business, WesTrac Holdings. While the Caterpillar-dealer business has solid cash flows and is well leveraged to the China story, sentiment seems to be that it's not a bad cross-party transaction, as far as that goes, but it's no coincidence the deal will see Stokes emerge with 68 per cent of the merged entity (from just under 50 per cent of Seven Network) or indeed that WesTrac's debt load will be addressed by the cashed-up Seven Group Holdings. Concerns have also been raised about the strength of WesTrac's Caterpillar agreements with its customers. For its part, Seven says it's unhappy with the discount its shares have been trading at for some time, had failed to find attractive alternatives elsewhere, and the proposed deal allows it shift from an investment company to an operating company. Meanwhile, an unwillingness yesterday to rule out a further incursion onto the Consolidated Media register has stoked speculation that pay television will play a greater role in Stokes' business down the track, and comes as the government threatens to force Telstra to dump its Foxtel stake. Meanwhile, the Australian Financial Review flags the possibility the new vehicle could be used to be snap up private equity firm Kohlberg Kravis Roberts' share of Seven Media Group in due course, or help facilitate a spin-off of the Seven Media joint venture, which houses the Seven television network, 50 per cent of Yahoo!7 and Pacific Magazines.

Viterra, CSR, Warrnambool Cheese and Butter

Canada is not yet finished with Australian food companies, with grains giant Viterra looking to follow up last year's $1.6 billion ABB Grain purchase. Speaking in Adelaide, South East Asia president Rob Gordon is quoted in Bloomberg as saying Viterra would look for opportunities to expand its footprint in "this part of the world”. Gordon's forecast of greater interest from "sovereign states with food security on the mind” comes as CSR works out what to do with its sugar business following interest from China's Bright Foods and the 'blessed are the cheesemakers' battle over Warrnambool Cheese and Butter.

Gunns

A shocker of a day yesterday for Tasmanian timber company Gunns, which announced it would create a separate investment vehicle for direct investment in its plantation forestry assets. Gunns says negotiations with Swedish forest products cooperative Sodra regarding an equity investment in its controversial proposed Tamar Valley pulp mill, dubbed "critical to maximising the value” of its Australian forest resource, continue. The company also said it was talking with "several new purely financial investors” about equity. Sources told the AFR, meanwhile, that Gunns is keen on snapping up more Great Southern assets but needs to sell other plantations assets first.

Wrapping up

To aviation, and Greece will have a new "national airline champion”, with Olympic Air and Aegaen Airlines announcing plans to merge. And after two and a half years on the bench, engineering and maintenance business UGL seems to have rediscovered its appetite for acquisitions, saying it had been eyeing two rail businesses in the United States. "People run the ruler over us all the time and we run our ruler over them all the time. I like a lot of the peer group companies,” chief Richard Leupen is quoted as saying, with market talk previously linking the company to Downer EDI. Meanwhile, oil refiner Caltex is still taking a look at the Australian Consumer and Competition Commission's decision to block the purchase of hundreds of Mobil petrol stations, while small takeovers could be on the cards for diversified financial Challenger Financial Group, which told shareholders yesterday it had weathered the global financial crisis better than many had expected. Finally, investors in Alinta Energy have cleared a $453 million cash, scrip and asset deal with former parent Babcock & Brown, as the utility tries to figure out the best way to slice its $2.7 billion debt load, with a source telling the Sydney Morning Herald an equity raising might be the preferred option.