BREAKFAST DEALS: Tinkler take-off

Coal magnate Nathan Tinkler lines up financiers for his now serious Whitehaven bid, while a player emerges in the battle for Perpetual.

Young coal tycoon Nathan Tinkler is moving quickly to secure enough finance and partners to take Whitehaven Coal, which he only officially joined recently, private. Meanwhile, Gina Rinehart’s unstoppable climb up the Fairfax Media register looks like too much for chairman Roger Corbett to resist. A board seat seems more likely now. Still in media, Seven West has been urged to raise equity, one of Perpetual’s private equity admirers has been given a name and Echo Entertainment is still stuck in a trading halt.

Whitehaven Coal, Nathan Tinkler

It seems Whitehaven Coal had good reason to believe coal magnate Nathan Tinkler was serious about taking the company private – aside from his 21.4 per cent stake.

Since Whitehaven announced it remains open to Tinkler’s advances, which have so far been "highly conditional and incomplete,” the ex-electrician has reportedly been busy looking for equity partners and yet more debt.

According to Reuters, Tinkler is trying to secure $US2.5 billion in debt from banks including UBS and JPMorgan. The report brings word from sources that say Tinkler is looking to offer Whitehaven shareholders a "healthy premium”.

Meanwhile, The Australian Financial Review says you can add Barclays Capital to that list, while elaborating that it believes the trio of banks have signed on to provide a $US1 billion-bridging facility. This would be replaced by another arrangement down the track.

It’s also been reported that Hong Kong’s Noble Group, which is about to come into some cash courtesy of the Gloucester Coal sale, is understood to have joined the Tinkler consortium, along with Farallon Capital Partners. It’s expected that a handful of Asian buyers will join the fray.

The concerns raised to Tinkler’s move, done through his private company The Tinkler Group, was that it simply wasn’t "serious”.

Given the apparent ease with which Tinker is generating interest from financiers and partners, some commentators might have to eat their words sometime down the track.

The fact remains that the "healthy premium” that Tinkler might have in mind has to reflect the trading conditions before the company’s merger with Tinkler’s Aston Resources. The deal that gave him his 21.4 per cent stake and brief billionaire title.

Whitehaven shares traded roughly between $5.30 and $6 from mid October 2011 to the merger date. Since then the stock has sunk to low $4 territory.

It’ll be a hard sell for a Tinkler consortium to offer much less than $6.27, which is the consensus analyst target for the stock. That’s a 47 per cent premium to the last trading price.

Coal prices have come off the boil because supply has stepped ahead of demand, while investors have wondered whether shale gas deposits might present a cheaper and cleaner alternative energy to coal.

While the market reconciles these two questions true believers in coal, which Tinkler clearly is, would be well advised to privatise undervalued assets and float them in a year or so when prices have recovered.

Sure, that makes sense. But before Tinkler secured the Whitehaven-Aston merger, many expected him to selldown his stake to repay some big debts.

Instead he’s talking to financiers.

Fairfax Media

The tenacity and dedication of Fairfax Media chairman Roger Corbett won’t be enough for him to prevent billionaire Gina Rinehart from securing one or two board seats.

That’s the emerging consensus this morning after Rinehart bumped up her stake in the company from 13 per cent to more than 15 per cent, with the help of Bell Potter Securities. Expectations are abound that she’ll lift that stake to 19.9 per cent.

Because she’s expected to take her share no further than the maximum allowable to a single holder without a takeover offer, the Fairfax share price dropped because a full bid was effectively ruled out. It never appeared to be in Rinehart’s estimations anyway.

If Rinehart were to secure 19.9 per cent, it’s entirely likely that she’d have the support of Allan Gray Australia fund manager Simon Marais. Allan Gray owns 9 per cent of Fairfax.

Marais has made qualified criticisms of Fairfax’s editorial independence policy, arguing that Rinehart should only be disallowed from raising issues if it would directly benefit her interests. It’s Fairfax’s steadfast editorial policy that Corbett is reportedly using as a reason to keep Rinehart from the board, because it’s said she doesn’t agree with it.

Rinehart is also pushing for two board seats amid widespread speculation that a suitor will swoop on the publisher, probably with the intention of splitting it up. With 19.9 per cent and two board seats, Rinehart would be in a formidable negotiating position to secure the assets many expect she desires – the metro ones.

Corbett appears to have two difficult choices. He can either bow to Rinehart’s wishes, at which point he’d have to explain how Fairfax’s editorial policy has been massaged or reimagined to accommodate the mining baroness. Alternatively, he can reject her push, but then he’d probably have to publicly explain why a 19.9 per cent shareholder of his company, with support elsewhere on the register, isn’t entitled to a struggling company’s boardroom.

Elsewhere, Australia’s top competition watchdog is apparently unmoved by Fairfax’s current difficulties, saying that consolidation in the newspaper industry is a non-starter.

Speaking at a business lunch yesterday, Australian Competition and Consumer Commission chairman Rod Sims seriously doubted that Fairfax and News Limited would ever join forces – quite right. But what about other cross media mergers?

The ACCC was very uncomfortable with the Foxtel-Austar United Communications merger and only approved that after a painstaking consultation process.

Sims said such proposals would be dealt with on a case by case basis. "Media is a very wide definition,” said Sims. "We will take it as it comes."

Seven West Media

While we’re on the struggling sector, Seven West Media has been encouraged to opt for a capital raising to help mend the company’s increasingly stretched balance sheet.

Citi analyst Justin Diddams believes that Seven West is getting close to its debt covenants based on 2013 earnings forecasts, adding that the share price already reflects expectations of an equity raising. Biting the bullet would help lift that negativity.

The Australian understands that Ten Network was so convinced that Seven West needs to raise capital that it launched its own $200 million offer to get in first.


Wealth manager Perpetual shrugged its shoulders at suggestions in the media yesterday that a private equity player or two is running the numbers on it.

Shares in Perpetual jumped 10 per cent as investors recalled the $38-$40 takeover bid from Kohlberg Kravis Roberts in 2010, which was rejected.

Perpetual says it hasn’t heard anything, brushing off the news as "mere speculation”. However, one of those players has now been tentatively given a name.

The Australian Financial Review believes that Pacific Equity Partners is one of the firms giving Perpetual the once-over. Yesterday the same newspaper believed that one of the offers being considered by one of the interested private equity firms was around $30 a share.

PEP was of course the firm behind the bruising and ultimately successful bid for Spotless Group.

One wonders whether PEP has a masochistic streak. Consider that the Perpetual board would be embarrassed to recommend a bid at $30 a share because it said $38-$40 wasn’t good enough.

It sounds like the beginnings of a disparity of opinion when it comes to value, just like what went down with Spotless.

Echo Entertainment

Breakfast Deals is officially out of the business of predicting when Echo Entertainment will drop its capital raising. The company looks like it’ll stay in a trading halt until Monday (that’s not a prediction, just a friendly suggestion) as talks continue with its US lenders.

According to The Australian, Echo is thinking about repurchasing $US460 million ($461 million) worth of notes that were issued last year unless the holders agree to changes in covenants.

Apparently this is the sticking point that’s keeping Echo from releasing the details of its planned capital raising, thought to be a $450 million renounceable rights issue with a discount of between 22 and 26 per cent.

Wrapping up

While efforts of administrators of collapsed engineering company Hastie Group have saved over 1000 jobs, creditors are not expected to receive much of the money owed to them.

According to PPB Advisory’s Ian Carson, it was likely that most companies within the collapsed group would go into liquidation.

Meanwhile, Fairfax reports that creditors of Reed Construction, who are owed up to $80 million, are worried that a contract the company owns with the law courts is now being controlled by Reed founder Geoff Reed.

In aviation, Etihad Airways chief executive James Hogan has tried to take some of the heat our of the aviation consolidation debate, saying that he is not in a hurry to increase the company’s stake in Virgin Australia.

Etihad has indicated that it wants to go past 4.9 per cent and is talking to the Australian Foreign Investment Review Board about that very issue. However, Hogan has told The Australian that this is part of a "long-term play”.

And finally, Gloucester Coal will now distribute $95.4 million in special dividends to shareholders following court approval for its merger with Yancoal Australia.

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