BREAKFAST DEALS: The Telstra show

Telstra is revealed to be the latest suitor for Nine Entertainment, while Origin looks to overseas governments for its LNG capital raising.

Nine Entertainment boss David Gyngell could find himself in the company of another David, Mr Thodey at Telstra. A media report indicates that Telstra is having a look at the debt-laden TV network; a scenario that could only ever play out if Thodey is unable to secure a bigger slice of Foxtel. Meanwhile, Origin Energy looks like it will need to raise $1 billion from the market to meet its APLNG funding obligations, which rules it out of the NSW government’s power privatisation efforts. Meanwhile, Suncorp has put a much cheaper covered bond into play than its larger rivals and Wesfarmers has hit some trouble with Target.

Telstra Corporation, Nine Entertainment

Telstra Corporation has reportedly indicated its interest in purchasing Nine Entertainment from CVC Asia Pacific, though a valuation hasn’t yet been decided. According to sources that have spoken to The Australian, Telstra has had a big team running the numbers of Nine for a month now with adviser Credit Suisse.

One of the sources indicates the deal is a bit of a stretch given that it wouldn’t help the telco’s strong yield and dividend, which is what makes its share price so attractive. However, it does show that chief executive David Thodey wasn’t kidding when he said the telco is looking at potential acquisitions in three areas – media, cloud computing and Asia.

Telstra’s obvious preference is a larger stake in Foxtel via James Packer’s hopeful exit from Consolidation Media Holdings. But the telco is going to need content for the post-NBN world and Nine is certainly the most distressed media company at the moment, which is saying something.

The Australian Competition and Consumer Commission has already made it plain that it intends to closely watch any attempt by Telstra to increase its stake in Foxtel. One wonders whether the federal government ever thought that handing Telstra billions of dollars to decommission its copper network to make way for the national broadband network’s fibre rollout could ever result in a move to keep Nine from the hands of US hedge funds. It would have been a faint hope.

Origin Energy

Origin Energy looks set to raise $1 billion from the market in order to help meet its funding obligations for the $US20 billion Australia Pacific Liquefied Natural Gas (APLNG) project. According to media reports, Macquarie and JP Morgan have already been lined up as underwriters of the proposal, with Merrill Lynch and UBS also said to be in the running for involvement.

The likely raising comes despite Origin securing, with its fellow investors in APLNG ConocoPhillips and Sinopec, $US8.5 billion in cheap funding from the governments of the US and China. The reports indicate that Origin hasn’t decided whether to go for a rights issue or a placement.

The news also comes as Origin flags a possible writedown to its $134 million stake in Transform Solar, a photovoltaic (PV) joint venture in the US. Until now, Transform manufactured the ultra-thin ‘Sliver’ solar cell technology. However, thanks to the global oversupply of PV, Origin has been forced to close the site, which is in the US state of Idaho.

NSW government asset sales

The NSW Coalition government could find that the window for easy power asset sales closed just after AGL Energy secured approval for the Long Yan A Power Station in Victoria. Premier Barry O’Farrell has secured support of the minor Shooters and Fishers Party for the plan to sell $3 billion in power assets, but the state of the market might mean that the governments fails in reaching that target or has to reach offshore for a buyer.

As shown above, Origin Energy has its hands full, while AGL is busy in Victoria. While TRUenergy could theoretically make a play, its Hong Kong parent company CLP Holdings is trying to get the company floated onto the ASX later this year. A major acquisition in the lead up to an IPO while markets are jittery would make a difficult job harder, to say the least.

The ACCC also pointed out at the approval of AGL’s purchase of Loy Yang A that there was a conflagration of factors that got the deal over the line. However, future consolidation in the electricity sector might be more difficult to come by.

The state of the markets also makes debt financing hard to secure on favourable terms. This raises the prospect of a major overseas bidder looking for infrastructure assets. The first place that comes to mind is Canada, as its major retirement funds have clearly expressed a desire for Aussie infrastructure. Canada is also ideal because, as a commodities-based economy, the country’s local currency has improved with our own.

Suncorp Group

Suncorp Group will undercut its bigger rivals in its $750 million covered bond issue in an effort to diversify its funding mix amid European inspired market uncertainty. The initial pricing of Suncorp’s 4.5-year fixed-rate covered bond has come in at 140 basis points over the average swap rate, which is a noticeable discount to Westpac Bank at 160 basis points and Commonwealth Bank at 175 basis points.

Barclays, Deutsche Bank, RBC Capital Markets and UBS have been sought out to joint lead manager the sale. Suncorp can launch a few billion more under the covered bond program, as can the rest of the big banks. But the thought is that it’s best to keep some powder dry with this reliable form of funding just in case Europe goes to sunder.

Wesfarmers, Target, Kmart

Wesfarmers chief executive Richard Goyder admitted during questioning from analysts yesterday that the turnaround at Coles – which has been a roaring success, it must be said – has distracted management from some now worrying signs coming out of mid-market department store Target.

The conglomerate announced that Target has incurred $40 million in restructuring costs, which is fodder for those who’ve suggested that the department store should have been sold off years ago, so attention could centre on Kmart. The unfortunate surprise also comes after former Target boss Laura Inman, a highly respected retailer, makes a new career for herself at the Billabong International.

Echo Entertainment

While billionaire James Packer is being thoroughly chastised in the press for trying to seize effective control of Echo Entertainment without a takeover premium – see this morning’s edition of The Distillery for more – The Australian Financial Review has detected a pulse of what could be a rival dipping its toe in the water.

According to the newspaper, in the past six trading days JP Morgan has traded $138.5 million in Echo shares, or 39.6 per cent of the overall market. Over the seven weeks before those six days, those figures were $49.9 million and 5.9 per cent, respectively.

That’s quite a jump. It should be pointed out that someone in the market could have been simply building a position anticipating that Packer would launch a full takeover offer. Such a play would be rendered less likely after yesterday’s events.

Wrapping up

Fairfax Media chairman Roger Corbett is reportedly fighting back against chief antagonist Gina Rinehart, the mining billionaire pushing for a board seat or two at the struggling media company. According to The Australian, Corbett is overseas – nice timing Mrs Rinehart – and has been calling institutional shareholders pledging to meet them upon his return.

Meanwhile, CSG Limited will have to wait 30 to 60 days until its deal with NEC, which was confirmed yesterday, goes through. The Japanese giant will pay CSG $255.7 million for its technology solution operations. At the other end of the M&A journey, communications provider Salmat has received an unsolicited approach for its business process outsourcing arm, which puts the company in a difficult position. The division is Salmat’s best earner and the question it faces for the bid is what it will do afterwards.

And finally, Talent2 chairman and co-founder Andrew Banks has launched a defence of the recruiter’s business model as he tries to take the company off the ASX. Speaking to The Australian, Banks said the business that he founded with long-time collaborator Geoff Morgan is fundamentally sound, even though some believe the $115 million offer to take it private is opportunistic.