BREAKFAST DEALS: Super Future fight

AustralianSuper could be set for a battle royale with the Future Fund, while Qantas leaves the door open to Emirates on ground operations.

AustralianSuper is reportedly, well, pretty pissed at the Future Fund and threatening legal action if the Perth component of its Australian Infrastructure Fund bid isn’t remedied, pronto. Speaking of flying, Qantas isn’t ruling out close ties with Emirates, just as Virgin Australia is easing up on expansion promises for Tiger Airways – spare a thought for Rod Sims. In gas, AGL Energy is in a fight with some heavyweights, APA Group is being unusually straightforward for an ACCC-mandated asset sale and potential media regulation changes has everyone talking.

AustralianSuper, Future Fund

Two of Australia’s largest institutional investors planning for the retirement of millions could go up against each other in a fight over billions.

AustralianSuper, which now boasts $60 billion under management following the recently completed merger with the Australian Government Employees Superannuation Trust, has reportedly threatened to sue the $82 billion Future Fund over its bid for the airport assets of Australian Infrastructure Fund.

This could pit Future Fund chairman David Gonski against AustralianSuper chairman Elana Rubin.

That’s not to mention Future Fund managing director Mark Burgess, who has been defiant from the beginning that the fund hasn’t done anything wrong, going up against AustralianSuper chief Ian Silk, who among other things has the greatest moustache in corporate Australia (and we suspect is the long-lost brother of Victorian Police Association Secretary Greg Davies).

The Future Fund has kicked up a stink amongst a number of institutional investors for its AIX bid, amid allegations that it has engaged in a practice known as ‘gaming’.

It’s where a bidder approaches an investor like AIX for a suite of stakes in assets with a headline number, in this case $2 billion for stakes in many Australian airports and some international ones.

To avoid pre-emptive rights agreements, where existing shareholders in those assets can simply match the bidding price and secure the stake instead of the suitor, valuations for those assets are inflated, while other assets that don’t have pre-emptive rights, or are less desirable to the bidder, are undervalued.

AustralianSuper is specifically concerned with Perth Airport, where it holds a 5 per cent stake to AIX’s 30 per cent. The Australian Financial Review reports that AustralianSuper has informed the Future Fund and AIF’s trustee Hastings Funds Management through its lawyers Arnold Bloch Leibler that the 43 per cent premium to the carrying value of Perth Airport breaches shareholder agreements relating to said asset.

The newspaper says AustralianSuper is telling the Future Fund and HFM to drop the valuation to fair value by Friday 4PM or… Well, we’ll find out then. Hey! That’s like, tomorrow.

‘Gaming’ is a practice that doesn’t really make either side look good. A bidder makes it look like it’s trying to usurp the rights of existing stakeholders, while the stakeholder looks odd for complaining that their asset has been overvalued.

It also leaves the bidder extremely vulnerable when it comes to assets that it undervalues if they carry pre-emptive rights. For instance, Industry Funds Management is thought to be considering exercising those rights for Melbourne Airport, which the Fund has at a 15 per cent premium, and Northern Territory Airports, which have been valued below that of an independent reviewer last year.

Breakfast Deals is curious to see whether minority shareholders like AustralianSuper has approached the Future Fund to say, "If you think an airport like Perth is worth 43 per cent more than fair value, buy us out too”. It’s only another 5 per cent on 30 per cent anyway.

A refusal to do so would be quite revealing.

Qantas Airways, Emirates, Virgin Australia, Tiger Airways

While we’ve got our eyes on airports, Qantas Airways has cheekily left the door ajar to linking its ground operations with alliance partner Emirates, according to Fairfax – we’re talking things like ground handling, catering and aircraft engineering.

"There are no current plans for co-ordination [for non-flying operations such as catering] in Australia at this time,” said the flying kangaroo in a submission to the Australian Competition and Consumer Commission.

‘No current plans’ is textbook corporate-speak. At the moment, that’s enough to keep the unions at bay, particularly the powerful engineers union.

With anticipated official approval from the ACCC due soon, any late objections from the unions is the last thing that consumer watchdog boss Rod Sims needs when he’s all but certain to give the green light.

Particularly, when you consider that Qantas rival Virgin Australia has just backed away from promises to significantly boost the fleet of Tiger Airways should it be allowed to acquire a 60 per cent stake.

All of which is taking place when the airlines are deliberately lowering their margins for the sake of a capacity war to protect market share.

You’ve got to feel for Sims. He’s working with quite a few moving targets.

At least he can console himself that he’s not the only competition regulator struggling with aviation industry consolidation. The European Commission has just vetoed the purchase of Ireland’s Aer Lingus by Ryanair… for the third time.

AGL Energy, Santos, Esso-BHP Billiton, APA Group

At the centre of the half-year results AGL Energy handed down by chief executive Michael Fraser yesterday were two deals that somehow involved government – one good, one bad.

Firstly, the boost in net profit to $364.7 million from $117 million was largely a reflection of the acquisition of the remaining stakes in Victoria’s Loy Yang A power station from shareholders including Japan’s Tokyo Electric Power Company (the Fukushima nuclear disaster guys).

The Australian Competition and Consumer Commission waived through that deal with some reluctance. It was made clear by the consumer watchdog that electricity consolidation is a concern and future deals, no matter how logical, would be closely scrutinised.

So that was a win for AGL, which was just in the right place at the right time. But last week a decision by New South Wales Premier Barry O'Farrell left them wrong-footed.

AGL has $325 million invested in exploration across the Hunter Valley and Camden, but Premier O'Farrell's new restrictions on coal-seam-gas exploration has forced them to signal pending write-downs.

The problem for the power company is New South Welsh exploration was seen as a potential pressure release valve for the rising gas prices coming from Santos and the BHP Billiton-Esso joint venture.

These supply agreements are updated every now and then and with AGL running out of alternative options, the power company is entering into arbitration with the big resource giants that are in a formidable position to push wholesale gas prices as high as $9 per gigajoule.

The historical average is $4 per gigajoule. And just to highlight just where Australia is compared to the United States with its shale gas revolution, the Henry Hub price is currently $3.50.

Although one thing’s for sure, Opposition Leader Tony Abbott’s assertion that the carbon tax is what’s pushing up power prices is seriously, and let’s face it, deliberately hilarious.

Speaking of gas, APA Group chief executive Mick McCormack has given an unusually forthright call for buyers in this morning’s edition of The Australian.

APA is trying to offload the Moomba-Adelaide pipeline, which is a condition imposed on the company’s purchase of Hastings Diversified Utilities Fund last year.

The gas pipeline company boss says he’s received interest from "a couple of dozen parties” but appears to be tired of playing games.

"I want to get Moomba-Adelaide sold as soon as possible, so anyone reading your story, if you want to give me a pre-emptive offer, give me a call. For the right money, it is yours,” McCormack told the paper (owned by News Limited, which also publishes this website).

"The asset will be sold for what it is sold for. I will be happy with whatever that number is. It doesn't affect the value of the transaction for us.”

If you’re interested in a gas pipeline, stop reading this and get on the bloody phone.

Seven Group Holdings, Prime Media, APN News & Media

Seven Group Holdings billionaire Kerry Stokes is playing his cards very close to his chest.

His chief lieutenant Seven Group chief executive Peter Gammell has ruled out a IPO for Coates Hire, saying that only a trade sale of its 45 per cent owned business is on the cards.

But many are wondering if Stokes will use the company’s lower debt position and much higher share price – up 70 per cent since mid-November – has greater ambitions.

For now, they’ll remain on those cards only he sees. But there is some attention centring on his 11 per cent stake in regional television and radio company Prime Media.

The Australian Financial Review reports comments from Prime Media chief Ian Audsley that annual synergies from a possible takeover by Seven Network would generate synergies worth $10 million.

Prime is Seven’s regional affiliate and the AFR understands the government is considering getting rid of the reach rule, which stops a single licence holder touching more than 75 per cent of the population.

It’s not a done deal, but that brings Seven-Prime into consideration, not to mention Ten Network-Southern Cross. Forget News Limited, the Australian Competition and Consumer Commission won’t let that happen because of its Foxtel holdings.

But for a Ten-Southern Cross deal to come to fruition, the pair have to sort out their affiliation agreement, which is taking a worryingly long time to get done.

Meanwhile, News has been linked to talks with APN News & Media about possible Queensland print synergies. The Australian Financial Review also believes News might even be considering purchasing APN’s asset.

APN is significantly weakened. The company was forced to scrap its results presentation after major shareholders ousted the chairman and the chief executive. Speaking of which, Ten’s boss has gone too.

Wrapping up

Fortescue Metals Group chief executive Nev Power must be pleased with how the sales process for a minority stake in its infrastructure assets is going if comments during the BMO Metals & Mining confidence in Florida are anything to go by.

According to The Australian Financial Review, Power told the conference that indicative bids for the $US3 billion-plus stake had met its expectations, although the question of whether a deal will be completed by June was met with the old line "that may be a bit optimistic”.

Meanwhile, remember how we’ve been talking about property and international investors being the big thing this year.

Well, Deal Journal Australia has a story indicating that global boutique private equity firm International Real Estate Investment & Financial Solutions Group seeing aside $US500 million for Australian and New Zealand investments over the next two years.

"The motivation behind that decision is that we believe the US economic recovery will still take another five to six years, so we're targeting stable regulatory nations like Australia and New Zealand as part of our broader Asian growth strategy,” global managing director Pat Collins said.

All that money rotating out of bonds, with the help of some global money printing, has to find a stable place to land. As the New Zealand-born Australian actor Russell Crowe said in his acceptance speech for his Academy Award, "God defend New Zealand and thank Christ for Australia”. Though, it's pretty safe to say he was making a different point entirely.

Anyhow, and finally, listed financial advice business Australia is reporting its interim results today, listen out for any new details on the proposed merger with WHK Group. SFG has also recently acquired accounting business Lachlan Partners.


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