BREAKFAST DEALS: Tinkler tilt?

Nathan Tinkler may be readying for a hostile tilt at Whitehaven, while Endcoal accepts an offer from a Chinese suitor.

Nathan Tinkler is reportedly rejigging his finances and pressuring the Whitehaven board for the end of a standstill agreement that will no doubt fire up the speculators. Coal is a theme this morning as Endocoal accepts an offer from a Chinese investor. Meanwhile, Elders and Ruralco could still end up seeing their rural services businesses combined, but the latter is going to have to work for it. Meanwhile in media, News Corp’s apparent interest in Penguin has turned out to be a non-starter and Ten Network is reportedly close to getting a revised (and hopefully final) deal for EYE Corp.

Whitehaven, Nathan Tinkler

For Nathan Tinkler fans, The Australian Financial Review has some compulsory reading this morning.

The newspaper reports that Tinkler has asked the board to lift a standstill agreement that would allow him to go hostile for Whitehaven or partition fellow shareholders for the removal of directors.

Separately, the AFR has spoken to sources that indicate Tinkler has been in talks with New York’s Leucadia National and investment bank Jefferies about a plan to restructure his personal loans with Credit Suisse that "that could shore up his finances for a takeover tilt at Whitehaven Coal”.

Quite how far Tinkler would get with securing the support of other shareholders to knock over some directors is unclear. For what it’s worth, Whitehaven itself looks pretty confident that it has the support of the broader register.

But the restructuring of his personal loans is an interesting one, particularly with Leucadia. Mining enthusiasts will remember the name Leucadia as the company behind Fortescue Metals Group’s initial financing arrangements in 2006. As Business Spectator’s Stephen Bartholomeusz explains, Leucadia knows how to drive a hard bargain.

In recent months, the apparent liquidity troubles that have struck some of Tinkler’s peripheral investments have leant weight to suggestions that the young mining tycoon might be pressured by short sellers into lightening his stake in Whitehaven.

There have been the problems with Patinack Farm, which Tinkler apparently tried unsuccessfully to offload for $200 million after putting $300 million in. One report indicated the superannuation payments hadn’t been made.

Then there has been the Tinkler’s legal disputes with mining contractor Sedgman and property company Mirvac.

The suggestion that a restructuring of his personal debts could lead to another go at Whitehaven needs to be seen in a broader context.

Tinkler can’t take Whitehaven alone. A restructuring of his finances might allow for a little more firepower, but he’ll still need international investors interested in taking a company that’s producing results that he apparently is none too pleased about.

However, Tinkler is unlikely to have to find a bid that matches the previous $5.3 billion move on Whitehaven. The company’s market cap has sunk to less than $3 billion after the withdrawal of the privatisation proposal and the decline in global coal prices.

While we’re talking coal, Bowen Basin junior Endocoal has attracted a $71 million offer from a Chinese-backed investor.

The board of the exploration firm has thrown its unanimous support behind the 38 cents a share offer, a 65 per cent premium to Friday’s closing price.

The offer comes from U&D Mining Industry, which is a joint venture unit between China Yima Coal Group and fertiliser company Daton Group Australia, which was formed by Yima to invest in Australia.

Elders, Ruralco

Elders might have decided that a sale of its main rural services business would generate greater returns for shareholders than a merger with Ruralco. But that mightn’t stop the two businesses from joining forces in the end.

Elders is effectively bringing 173 years of history to a close of sorts with the announcement that it will sell its Rural Services division. It’s been reported that the decision came after a clear message from its syndicate banks, which includes ANZ Bank, Commonwealth Bank and National Australia Bank that they had to effectively liquidate the business themselves or the lenders would move in. It’s also been reported that the lenders had liked the idea of a Ruralco merger.

Ultimately, the famous company has opted to sell the rural services arm "as part of an accelerated strategy to return value to stakeholders”.

Not much value will be returned to shareholders, it appears. Elders has total debts of $450 million to go with its market capitalisation of $110 million. While the sale of the rural services arm could generate something in the order of $300 million on top of the proceeds from the sales process for the automotive division Futuris, shareholders are not exactly in for a big pay day after liabilities have been settled.

Elders said it’s speaking to its lenders over refinancing arrangements.

As the largest shareholder and former merger partner hopeful, Ruralco made known its displeasure with Elders' decision to sell the rural services business .

It wasn’t long ago that an unsuccessful attempt by Ruralco to coax Elders into merger discussions became public. Indeed the decision by Elders to divest Futuris was interpreted by some as a prelude to a merger.

Ruralco will be disappointed with the announcement because now it has to go up against international bidders than could bring quite a bit of firepower – agricultural assets are particularly sought after at the moment, as evidenced by the attention that GrainCorp is getting.

But if there’s a business up for sale, Ruralco is still in the game.

"Ruralco will take a disciplined approach to any potential acquisition to ensure that it creates shareholder value,” the company said in a statement yesterday.

With the end of the year fast approaching, the final outcome for Elders won’t be decided until the first half of 2013. Astonishingly, the company’s history dates back to 1839.

While we’re talking agribusiness, hedge fund manager and 3AW drive host Tom Elliott has an interesting take on the play for GrainCorp by American giant Archer Daniels Midland (ADM).

In his weekly column for Eureka Report, Elliott has previously suggested that investors might think twice about buying in at $12.50. Given that ADM is only talking about $11.75 at the moment, there’s a lot of room to cover before speculators can make a profit at those levels.

Since then the price has drifted back and closed yesterday’s session at $12.22, prompting the following observation.

"Graincorp apparently has up to $100 million in franking credits which would be useless to bidder Archer Daniels Midland because it’s foreign,” writes Elliott.

"The suggestion is that with franking credits and a special dividend, the $11.75 a share offer could be worth roughly $12.18 to investors who can make use of the credits.

So what you’re seeing here are low-cost ways that the deal could be sweetened, and I think you’re almost guaranteed – even if they don’t improve the bid from $11.75 – to have it converted to capital and a fully-franked dividend. That means buying at $12.20 or below is a very good risk-reward trade-off.”

So, who’s up for a punt?

Pearson Plc, Penguin Group, Bertelsmann, News Corp

It didn’t take long for the story that News Corp was lusting after Penguin Books to become a short one.

No sooner had News apparently emerged as a potential rival to Germany’s Bertelsmann (via a report in one of its own English publications) in the race for the iconic publishing house, owned by England’s Pearson Plc, it was announced that the Germans had won the day.

Now it’s been revealed that Pearson will put Penguin into a joint venture with Bertelmann’s Random House, which will create one of the world’s largest publishing houses. The name is rather sensible – Penguin Random House.

Berteslmann will take a 53 per cent stake in the new joint venture to Pearson’s 47 per cent. The pair didn’t disclose the value of the deal, but reports have valued the business between $US2 billion ($1.9 billion) and $US3 billion.

The report from London’s Sunday Times indicated that News could offer something in the order of £1 billion ($1.56 billion) for Penguin. If both the equity valuation of Penguin Random House and the News proposal figures are accurate, it would mean that Rupert Murdoch was offering something that slightly eclipses the upper range of that valuation. News could have combined Penguin with its own Harper Collins business.

It’ll be interesting to see what global competition regulators have to say about it. Penguin Random House is set to command substantial market shares in a number of countries, but this is happening in the broader context of traditional publishers struggling to hold their ground against online competitors and the rise of the eBook.

Wrapping up

Ten Network might have some good news for the market in the next few days, with The Australian Financial Review reporting that the broadcaster is expected to finish the sale of outdoor advertising business EYE Corp to CHAMP Private Equity.

The original sale price of up to $145 million has since been wound back to $110 million, but the newspaper says that it’s actually close to $115 million.

The same newspaper also reports that Mariner Corporation has written to the board of takeover target Wilson HTM, where it calls on the independent directors to have a look at their takeover offer.

And finally, Woodside Petroleum has signed a memorandum of understanding with Japan Bank for International Cooperation that would pave the way for the bank to provide financing for future projects.

JBIC is the country’s export credit agency. The Chinese and American versions of these government arms have been increasingly active this year, with Origin Energy also benefiting from agreements of this sort.