BREAKFAST DEALS: Strong Linc

It’s hard not to notice how hard Linc Energy’s share price has surged recently and how launching a convertible note at $3.50 would have seemed a mere pipe dream in November. The Qantas-Emirates deal has been waived through, as expected – although there was one little surprise for onlookers. Meanwhile, a senior business columnist has solemn news for investment bankers betting on an M&A revival, GrainCorp’s share price is sitting well below Archer Daniels Midland’s offer price and Hills Industries is the latest to join the building materials exodus.

Linc Energy

Underground coal gasification company Linc Energy has timed its capital raising pretty well.

Linc shares were placed in a trading halt yesterday at $2.67, up from about 57 cents in November, as it looks to raise a reported $200 million to $240 million in convertible bonds.

Media reports indicate that the bond issue will be around $3.40-$3.50 per share that can be converted in 2018. That’s about a 30 per cent premium to the current share price and simply incomparable to the levels Linc was trading at just a few months ago.

Linc shares have rocketed on a series of compelling drilling results, particularly at South Australia’s Arckaringa Basin, as well as rumours that Russian billionaire Roman Abramovich has his eye on Linc’s oil reserves.

Linc boss Peter Bond holds 39.6 per cent of the company either directly or through family and associated interests. With the stock at its highest levels since July, that stake is worth $546.5 million.

The company is likely to channel the money into its exploration program, with Linc already looking at bringing in a partner with shale oil expertise. Barclays was tapped earlier this year to find such a partner.

And just last month the competition watchdog said it would allow Linc to bid in conjunction with companies like Whitehaven Coal, Endocoal, QC Resource Investments and Yancoal Australia for access to Aurizon’s proposed rail line between Queensland’s Galille Basin, Abbot Point and Dudgeon Point.

Qantas Airways, Emirates

The certainty that the consumer watchdog would approve the five-year alliance between Qantas Airways and Middle Eastern giant Emirates was flagged so strongly that there was little expectation of a surprise.

But Australian Competition and Consumer Commission chairman Rod Sims did perhaps catch some off-guard yesterday with the news that the regulator didn’t have much regard for Qantas boss Alan Joyce’s claim that its international business is in terminal decline.

“The ACCC does not consider that a more detailed forensic analysis of Qantas’ accounts is necessary or even useful for the purposes of this assessment,” said the regulator.

“The ACCC’s conclusion is not based on Qantas’ claim that its international operations are in ‘terminal decline’. The ACCC has rejected Qantas’ claims that, in the future without the proposed conduct, it will cease all international services and operate a virtual network in the medium to long term.”

That claim became a subject of contention between the ACCC and independent Senator Nick Xenophon, who was flabbergasted that the watchdog hadn’t properly tested that notion. It appears Sims had just as much respect for the statement that Xenophon did.

One wonders what Sims believes is the case with the proposed Virgin Australia majority stake purchase at Tiger Airways. The argument there is that the Singaporean-owned Tiger is a ‘failing force’ and that without Virgin’s support it could pull out of the Australian market altogether. Thematically at least it’s the same argument as Qantas', albeit in a different market.

As Business Spectator’s Stephen Bartholomeusz pointed out yesterday, “The deal allows Qantas to leverage off Emirates’ Dubai hub to open up a wide array of European ports. And importantly, it enables it to redeploy its own metal into Asia in pursuit of a new dimension to its international strategy that makes more sense within the new international aviation order.”

Now with Qantas’ attention back on the growth in its Asia business, rather than the decline of its European routes, it’ll be interesting to see what Joyce can come up with next.

Australia’s M&A Scoreboard

Is the post-global financial crisis M&A industry destined to be saddled with levels of activity that are "permanently" much lower than before 2008?

That’s the question posed this morning by The Australian Financial Review’s Chanticleer columnist Tony Boyd this morning.

The highly respected business scribe has spoken to a partner at “a top five corporate law firm with more than 30 years experience” who believes that structural change, not mere market sentiment, will result in greatly reduced activity levels.

These changes include lower economic growth, boardroom and regulatory conservatism and rising protectionism in developed economies.

The local deals market has had a terrible start to 2013, although hopes remain that the second half could see the return of IPOs. Some deals are being done, but they’re frequently less ambitious joint ventures, alliances and non-core asset sales.

Serious takeover offers with even a hint of scrip and big IPOs have been effectively over for 18 months.

But Boyd makes the point that investment bankers tend to watch the proportion of M&A activity that’s crossing international borders – foreign direct investment is such a crucial component of M&A and a barometer of sorts for global confidence.

In 2012 it slumped to 25 per cent of total deals, which is a three-year low.

Boyd quotes former Australian ambassador to China Geoff Raby, who warns Beijing has been disappointed with some of its recent investments in Australia that it overpaid for and is demanding greater accountability from state-owned enterprises.

GrainCorp

March hasn’t been kind to Australia’s major takeover target GrainCorp, with the stock slipping noticeably beneath the offer price from US giant Archer Daniels Midland.

GrainCorp shares are now changing hands at $11.76 compared to the $12.20 ADM is happy to pay as some agricultural-related firms report disappointing results thanks to a hot summer.

Nufarm went into a trading halt just yesterday before announcing its half-year results a day early, describing the Australian results as “exceptionally bad”. Nufarm stock is down 14.5 per cent in the last month.

This is part of ADM’s strategy with GrainCorp. It’s taken a 19.9 per cent stake in the company and used the argument that agriculture is a cyclical business, as Nufarm shareholders are remembering right now.

The difference is that GrainCorp isn’t just an agricultural trader, but an infrastructure owner. It has strategic significance and the board has expressed confidence that it’s well justified in holding out for a better offer – thought to be somewhere above $13 a share.

However, it looks like some shareholders weren’t keen on buying that story in March.

Hills Holdings

Hill Holdings has succumbed to the pain being felt in the buildings materials industry and put its businesses in the sector up for sale because they don’t generate adequate returns.

The company has put the remaining parts of its Orrcon steel tube and pipe business and its Fielders roofing and flooring business up for sale so it can focus on its more profitable product group – electronics.

Hills also offloaded its $26 million stake in Korvest last month via a bookbuild.

The building materials industry has been in a funk for some time. The most recent headline grabber was in mid-January, when Boral chief executive Mike Kane sacked 700 workers.

Wrapping up

Brazilian-focussed gold miner Beadell Resources has tapped UBS to help it raise $25 million. The raising is being conducted at 89 cents, a 5.3 per cent discount to the last trading price.

Beadell owns the Tucano Gold plant in Brazil. The company says it’s raising the cash to strengthen its balance sheet and meet capital expenditure, following a delay to the site’s commissioning.

Still in resources, Resolute Mining chief executive Peter Sullivan is continuing to talk up its search for assets in Africa, with a civil war in Mali, falling gold prices and rising costs all weighing in asset valuations. Sullivan was speaking to Deal Journal Australia.

Meanwhile, Transfield Services has signed an “early services agreement” to supply land material maintenance for the Australian Defence Force.

The contract’s initial term is six years, with the potential for one-year extension options for the following five years.

The value of the contract was not revealed.

Elsewhere, Ramsay Health Care shareholders reacted favourably to the private hospital operator’s $500 million joint venture with Malaysia’s Sime Darby.

The stock rose 1.7 per cent against a rise on the benchmark index of 0.9 per cent.

And finally, the Australian government has sold $650 million in Treasury bonds for April 21, 2027.

That’s also the same year scientists estimate an asteroid half a mile wide, dubbed Apophis, will come very close to earth.

But the odds of it actually hitting earth are estimated to be 1 in 45,000, giving investors a solid chance of enjoying that 3.26 per cent average yield.