Breakfast Deals: Taking flight

The competition watchdog is in the news in a big way, clearing two significant deals yesterday. First up is the increased stake in Virgin for Air New Zealand and with recent moves from Singapore Airlines and Etihad, there’s plenty to ponder. But could a takeover really be an option? In its other decision of note, the ACCC has offered approval for Westfield to buy a major Perth shopping centre, but the ASX-listed group has to give to receive. Elsewhere, Macquarie helps Consolidated Minerals exit its BC Iron stake, a wave of consolidation could be afoot in the engineering space and QBE’s Europe operations split in two.

ACCC, Virgin, Air NZ, Etihad, Singapore Airlines

The Australian Competition and Consumer Commission has made its second favourable ruling for Air New Zealand and Virgin this week. Just two days after clearing an extension to the trans-Tasman alliance of the two carriers, the competition watchdog gave approval for Air NZ to increase its Virgin stake from 19.9 per cent to 25.9 per cent.

The Auckland-based company entered into an agreement for a 3 per cent increase back in June and has said it “will consider acquiring up to a further 3 per cent;” though don’t expect that until the end of the year thanks to Australian ‘creeping’ provisions.

The lift in the stake is still subject to approval from the Foreign Investment Review Board, but that appears likely to be forthcoming.

Air NZ isn’t the only major shareholder upping its stake, with Etihad this week announcing it had increased its Virgin shareholdings from 10.55 per cent to 12.35 per cent, though still below the 19.9 per cent is has been given approval to reach. And Singapore Airlines took a significant slice of Virgin Group’s holdings in Virgin Australia earlier this year to bring its position to just shy of 20 per cent.

Air NZ recently insisted it had no intention to neither meddle with the board nor launch a takeover bid, and with so many parties at play, a takeover appears unlikely. Indeed, the market’s muted reaction to the changing stakes this week shows such a move is not expected. But what is the endgame?

Do three major airlines just sit pretty with a fifth or quarter of the company and just leverage the relationship while hoping to make some money on the investment? Or is there more to it?

And who would gain most from a takeover? Each airline has a strong strategic reason to deal with Virgin.

Air NZ gets the trans-Tasman alliance it once coveted with Qantas and previously pursued through its disastrous Ansett deal; Singapore Airlines secures access to a key growth market for Asian tourists and Etihad gains a deal to challenge that of Emirates-Qantas.

As a result there have been rumours a takeover offer could be forthcoming with a combined Air NZ and Singapore proposal considered possible due to their Star Alliance connection. Air NZ has gone outside that alliance, however, with deals with Cathay Pacific and Etihad. Lest we forget, Air NZ has the Ansett disaster to remind it of the dangers of buying into a loss making business and Singapore’s foray through Tiger has not exactly been a roaring success (it’s now 60 per cent owned by Virgin).

Indeed, if a joint deal was to come, Air New Zealand and Etihad would make more sense.

But as the above shows, any move would likely be complex especially once factoring in regulatory issues.

Westfield Group, Westfield Retail Trust, Uni Super, Charter Hall, ACCC

In a separate decision, the ACCC yesterday authorised the proposed purchased of the Karinyup shopping centre in north-west Perth by Westfield Group and Westfield Retail Trust. The competition authority did, however, make it conditional on the divestiture of a nearby shopping centre at Innaloo, which has been agreed to by Westfield.

According to The Australian, the 40-year-old Karinyup centre is worth around $620 million, with Westfield Group and Westfield Retail Trust looking to claim the two-thirds share it doesn’t own from Uni Super.

Westfield first flagged the purchase to the ACCC back in August 2011.

It has previously been reported that Charter Hall Group is the lead suitor for Innaloo.

Consolidated Minerals, Macquarie, BC Iron

Consolidated Minerals has disposed of its stake in BC Iron, according to media reports. Ukrainian controlled Consmin sold the 23 per cent major shareholding for $111 million through Macquarie Securities to a group of new and existing shareholders, according to The Australian. The deal was closed at $3.90, a 5 per cent discount to yesterday’s closing price of $4.10.

Another major shareholder and one time suitor, Regent Pacific, sold out of BC in January, reaping just over $80 million for its 20.1 per cent stake.

SKM, Jacobs Engineering, Worley Parsons, Amec

The heavily speculated $1 billion deal between Sinclair Knight Merz and Jacobs Engineering should be completed over the weekend, according to the AFR. The move from Jacobs, a US-based group, to buy out private Australian company SKM could lead to a wave of activity in the engineering sector, according to The Australian.

The paper suggests a tie-up between Australia’s Worley Parsons and UK-based Amec could be the next deal on the cards. Worley and Amec have long been speculated as suitable partners, though it should be noted the current speculation is not based on sources from close to either company. On a side note, both Amec and Worley reportedly held separate discussions for a merger with SKM last year.

Wrapping up

A group of Singaporean investors linked to Melbourne business identity Joseph Gutnick has made its way on to the registry of little known ASX-listed gold explorer Bass Metals, according to The Australian. The move is significant ahead of a vote to spill the board on October 4 and while Bass pursues a multi-million dollar damages claim against Singapore’s Lion Gold Corp, which allegedly has links to the investors buying into Bass.

In retail, ACCC chair Rod Sims has said the authority is “close to the end” of its inquiry into the petrol discounting schemes of Coles and Woolworths, according to The Australian.

Corporate advisory group Fife Capital is looking to raise $126 million from a float of Australian Industrial Trust, according to the AFR. It is reportedly to be underwritten by lead arranger UBS and co-managers NAB and CommSec.

And finally, Australian-based QBE Insurance has said it will split its European business in two: retail and international markets. Its reinsurance franchise QBE Re will not be impacted by the October 1 move.