BREAKFAST DEALS: Sundance's new dawn

For the first time since July 2011, African-focused Sundance Resources isn’t the target of China’s Hanlong Mining. Three questions come to mind about what happens next. Former Billabong director Paul Naude is odds on favourite to win the embattled surfwear company at 60 cents a share. Meanwhile, the prospect of IPOs in the healthcare space is gaining momentum, while fund managers are issuing warnings about the potential for Rio Tinto’s aluminium problems to suck some life out of the Mighty River Power float.

Sundance Resources, Sichuan Hanlong Mining

There are three questions facing Sundance Resources this morning as the wreckage of the $1.38 billion Sichuan Hanlong Mining takeover offer lies at its feet.

What are the chances of another deal being secured?

What price could shareholders expect if it comes in the form of a takeover offer?

What happens to Hanlong’s 18 per cent stake in the African-focused, ASX-listed iron ore company?

Last night, Sundance finally put an official end to talks with Hanlong, which began way back in July 2011 only to eventually turn from conditional and troublesome to contradictory and farcical.

Thanks to the constricting nature of corporate-speak, chairman George Jones could only say that it was “disappointing” that talks have failed after all this time – one imagines that he’d have a few more words in his private lexicon to describe the outcome.

But now Jones can get on with the job of searching for another player than can help bring the $5 billion Mbalam iron ore project between the Republic of Congo and Cameroon to life.

“This will enable us to focus all our efforts on discussions with other parties that have expressed interest,” said Jones last night in a statement to the ASX.

Sundance shares last traded at 21 cents each, showing just how meaningless the market considered Hanlong’s 45 cents offer towards the end. Excluding a brief spike in August, when a revised offer was agreed upon, Sundance shares haven’t been above 45 cents since May last year.

Just what price Sundance can command from the market is uncertain. Jones pointed out that estimations for Mbalam’s probable reserves have been increased since Hanlong first came knocking.

Crucially Sundance has secured the necessary approvals from the governments of Congo and Cameroon. The last 21 months with Hanlong have not been a complete waste of time.

“Sundance’s Mbalam-Nabeba project is significantly more valuable today than when the Hanlong bid was first made,” said Jones.

It’s an awkward claim for Sundance to make. When Hanlong first arrived it lobbed a bid of 50 cents a share. Sundance managed to get them up to 57 cents, only to accept a revised offer of 45 cents in August last year. That’s not to mention the current state of the share price, which hardly reflects the chairman’s confidence.

It’s worth remembering that when Hanlong first appeared the iron ore price mightn’t have been that much higher than it is right now – about $US170 per tonne versus today’s $US150 – but the outlook was substantially different.

As discussed yesterday (BREAKFAST DEALS: Iron roadblock, April 8) in relation to the proposal of a Pilbara rail line for smaller operators, major league levels of supply from BHP Billiton, Rio Tinto and Vale came online last year without a necessary pickup in Chinese demand to sustain prices.

More importantly, the date from which analysts believe the iron ore market will swing to a surplus has been wound back. Surplus is coming to an iron ore market near you.

Now Sundance can consider partnerships and funding proposals, as well as takeover bids. Its options have opened up.

Hanlong has requested that China’s chief economic planner the National Development and Reform Commission, the crucial body that accused the big three iron ore miners of price manipulation last month, remove its provisional approval of Hanlong as a bidder for Sundance.

This would open up the field for alternative suitors. Sundance says it’s engaging with other possible strategic partners in China, as well as other non-Chinese parties.

The NDRC’s claim against the big three iron ore houses, however baseless, still reflects China’s obvious desire to diversify away from the big three miners. Strategically speaking, Sundance is still attractive to the Chinese, but at a lower price.

As for Hanlong’s stake in Sundance, The Australian Financial Review understands that the stake could be recalled by Chinese banks because its $120 million under water at today’s share price.

Billabong International

While we’re talking takeover pain, Billabong International chairman Ian Pollard could confirm the register’s worst fears as soon as today that the preferred takeover offer has come in at just 60 cents a share.

Billabong’s former America’s director Paul Naude, backed by New York’s Sycamore Partners, is now a strong favourite to win out of VF Corporation and Altamont Capital Partners. But the headline price will be less than $290 million.

Media reports indicate that the news could come as soon as this morning. Although for what it’s worth, the sheer amount of time it took the two suitors to get a revised bid together, it would not be imprudent to take some time.

Two things to watch out for are whether the proposal comes with some tricky conditions and whether founder Gordon Merchant is allowed to continue to be involved with the company.

So far, the signs are that the answer will be yes and no to those questions, respectively.

But, as is wise with this deal, it’s best to wait and see.

While it’s rather unfortunate that Billabong knocked back TPG Capital at $3.30 a share, with a reported minimum price of at least $4 a share in mind, it must be emphasised that the private equity firm’s offer was conditional on due diligence; as was a rival proposal from Bain Capital.

It’s difficult to believe that anyone would have taken a close look at the books, even a year ago, and still thought it was worth $3.30 a share. Perhaps just as difficult to believe that one day, not long from then, it would be worth just 60 cents.

Virtus Health, Medibank Private

The drums for healthcare IPOs are growing louder from the movements at Virtus Health and the comments surrounding Medibank Private.

The Australian has seen internal memos from Virtus, majority owned by Quadrant Private Equity, indicating that former News Limited (publisher of this website) executive Peter Macourt has been lined up for the chair’s position if the $500 million float happens.

The newspaper says former CSL chief operating officer Peter Turner and United Group managing director Dennis O’Neill have also been tapped for board positions.

Meanwhile, big players in the health insurance industry have been throwing their two cents in about the prospect of a Medibank Private float if, as appears highly likely, the Coalition wins the next election.

This morning, nib holdings chief Mark Fitzgibbon is in The Australian Financial Review spouting the benefits of a privatisation, as it would create a more competitive health insurance market.

This follows similar comments from his counterpart at insurer Bupa Australia, Dean Holden, yesterday in the same newspaper.

Speaking of privatisations, concerns are being raised about the float of New Zealand’s Mighty River Power thanks to a Rio Tinto aluminium power supply deal.

Mighty River Power is headed for the Australian and New Zealand exchanges, although the vast majority of shares will be owned by Kiwis. The $NZ1.92 billion ($1.56 billion) raising, representing a 49 per cent stake in the government owned generator, will provide a crucial test for the IPO market, though it won’t be a thorough test of Aussie sentiment.

However, Rio is facing a familiar story in New Zealand with its Tiwai Point aluminium smelter. The plant accounts for about one-sixth of New Zealand’s electricity load and if the miner can’t negotiate a good deal with Meridian Energy, the plant could crumble – taking the electricity consumption down with it.

Wrapping up

ASX-listed natural gas company Buccaneer Energy is throwing open the doors to suitors, according to Deal Journal Australia.

“Everything’s on the table, including farm-ins, investments at the company level, a dual listing on a North American stock exchange or possibly a change of control transaction,” said director Dean Gallegos.

The company’s current market cap is $64 million.

Staying with resources, The Australian understands that Royal Dutch Shell might offload some additional assets with the Geelong refinery to attract a bidder. We’ll have to wait and see if that strategy works.

Meanwhile, Polymetals and Southern Cross Goldfields have announced a merger deal that will create a gold miner with up to 69,000 ounces of annual production.

Polymetal shareholders would receive 11 Southern Cross shares for each security they hold, with the combined company looking at a $26 million market cap based on yesterday’s closing prices.

And finally, Wesfarmers boss Richard Goyder has put a pretty big bullet through speculation that the retail giant could offload department store Target by appointing key lieutenant Stuart Machin to run the business.