BREAKFAST DEALS: Telstra's Nasdaq drive

Telstra Corporation considers floating its Chinese car ads business in the US, while Discovery is set to reveal details of its proposed capital raising.

Telstra Corporation is reportedly thinking of floating a Chinese car ads website on the Nasdaq. could also be possible trade buyer. Meanwhile, the Discovery Metals board has a difficult but necessary decision to make this morning on behalf of its already bruised shareholders. Also, BHP Billiton raises seriously cheap, seriously long-term debt in Europe and Virgin Group has an even more crowded register deck to deal with.

Telstra Corporation, Autohome

Telstra Corporation is reportedly considering a float of its majority-owned Chinese car sales website on America's Nasdaq, which could value the asset at up to $US1 billion ($974.2 million), The Australian Financial Review reports.

The newspaper understands that Telstra, which owns 66 per cent of China's largest player in the field, Autohome, has discussed the float idea with financial advisers. The report also says Telstra hasn't denied the suggestion that talks with advisers have taken place – it just wouldn't go into specifics.

That's because companies don't tend to discuss proposals before they're fully-hatched, for the simple reason that a float isn't the only option. Telstra could also opt for a trade sale to a player like Australia's or the UK's Autotrade. Those two names were put forward by the AFR. has a market cap of about $2.6 billion. The AFR brings word from sources that the business could be worth between $US500 million and $US1 billion.

That's a big range, showing to some degree how early in the piece this story is. But with the upper end of that range, the most would probably be interested in is buying out Telstra's stake, rather than bidding for the whole company.

Very early days with this one.

Discovery Metals, Cathay Fortune

It takes a brave board to reject a potential suitor for a second time when your share price is changing hands at one-fifth the original offer. But that's what Discovery Metals should do.

Discovery, an African focused copper miner, is expected to emerge from a trading halt this morning to reveal the details of its proposed capital raising, having borne the brunt of a pre-emptive strike from one-time suitor and largest shareholder, Cathay Fortune, and its billionaire chairman Yu Yong.

Shareholders will probably be receptive to a proposal from Yu, given that his indicative proposal in October of $1.70 cash, though slippery, is a damn sight higher than the stock's last trading price of 34 cents. That's $870 million in total compared to a current market cap of $165.5 million – plus there's a capital raising coming.

"We are of the opinion that if Discovery progresses with the current financing arrangements, it is likely that it may be forced into receivership in the near future," the firm said in a letter to shareholders on Wednesday.

Cathay holds 13.7 per cent of the register, but stands to end up with as little as 5 per cent if it makes good on its threat to not participate in the capital raising. It has an obvious incentive to prevent the raising if it disagrees with strategy, but talking so openly about receivership is very unusual, at least in the Australian corporate PR world.

Cathay has lobbed a proposal that appears to offer Discovery shareholders a reassuring alternative, but in truth it's a roll of the dice. They are demanding that Discovery not proceed with the capital raising being conducted by UBS and Credit Suisse. Their reasoning is that ongoing raisings will "likely" be at a lower price, given their aim of securing a bond issue refinancing structure later is unrealistic. The firm is also demanding full disclosure from the board on the company's current "critical situation", which is an unveiled accusation that the board hasn't informed shareholders.

Cathay has suggested a due diligence period of no more than 10 days so that interested bidders can take a quick look at the books and then "propose a binding cash proposal to acquire Discovery".

"To facilitate competition, Cathay Pacific is willing to make the due diligence non-exclusive and agrees not to accept any offered break fee in the proposal to be recommended by the Discovery board to shareholders," the private equity firm added.

First of all, assuming that Discovery would have to conduct capital raisings down the road at a lower price, even behind the qualifier 'likely", requires a pretty good crystal ball into the copper price.

But take the bear's argument to be solid – throwing the word 'binding' into a hypothetical discussion of a due diligence period that would ruin the company's current capital raising efforts, leaving it with little alternatives but a change of control proposal, is shameless. Nothing's binding about this pre-eminent strike from a 13.7 per cent shareholder. All you're guaranteed is that press release.

Additionally, as a 13.7 per cent shareholder, Cathay can't thwart any alternative takeover bids by making the due diligence proposal that the board hasn't agreed to non-exclusive, but it can certainly make mischief with it. In fairness that presumes it goes back on its promise not to participate in the raising.

While process towards bringing the Boseto copper project in Botswana to life and making Discovery stable with positive cash flow has been rocky, the alternative proposal requires a complete lack of confidence in the board.

Discovery shareholders will be wondering what could have been if the board had engaged with Cathay at $1.70 a share. They'll never know – Yu might have made good on it, but this column doubts it. His proposal was a flashy headline number, structured for an easy exit if needed.

If they take the bait now, the company will be a hostage to a 13.7 per cent shareholder that won't be offering anything like the original deal.

BHP Billiton

While we're talking mining, BHP Billiton is continuing to show just how big it is on the scale of the world's largest companies.

The mining giant announced a 20-year, €750 million ($950 million) bond issue on Wednesday at 3.125 per cent, or 108 bps above the swap rate.

To put that into perspective, US communications giant AT&T recently picked up 20-year money at 50 bps higher than BHP Billiton, and the Australian government's 15-year bonds are priced at 3.53 per cent.

When BHP Billiton last informed the market, almost two-thirds of its bonds came from the US, another quarter were sourced from Europe and just less than 10 per cent came from England.

BHP Billiton has well and truly thrown its home market in Australia.

Virgin Australia, Singapore Airlines

By now we are all well aware that Singapore Airlines picked up a larger slice of Virgin Australia via billionaire Virgin Group founder Richard Branson.

No need to dole up here. Check out Business Spectator's Stephen Bartholomeusz for the 411 on this story.

Wrapping up

It turns out that James Packer will have to wait at least another month before the Independent Liquor and Gaming Authority will say whether his 10 per cent stake in rival casino player Echo Entertainment can be lifted to 25 per cent.

Speculation had pointed to some news from the regulator, but a statement from ILGA on Wednesday said quite simply, "That matter remains under consideration". As it has for approaching not much less than a year now.

Meanwhile, billionaire property developer Harry Triguboff has thrown cold water on rumours that he's planning to merge his Meriton Group with Stockland Group or a Chinese player, according to The Australian. He did say, while denying that talks had been held, that if a deal were to take place down the track it would be with a player based in Asia.

And finally, Goodman Fielder shares traded in heavy volumes earlier this week. We should find out today who the buyers and sellers were.

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