BREAKFAST DEALS: Virgin's mystery shopper

An Air New Zealand Virgin purchase would make the most of ‘creeping’ provisions, while Federation Centres goes full steam ahead.

*This column was published prior to Air New Zealand's confirmation of its purchase of the Virgin Australia stake.

A big parcel of Virgin Australia shares changed hands yesterday and Air New Zealand is the prime suspect buyer. Federation Centres has now sold over $1.6 billion in asset stakes for its new strategy. Meanwhile, Macmahon Holdings has been punished once by Glencore without explanation and a second time by the market without context. However, Macmahon wasn’t punished as much as Billabong International, which also took a hit yesterday… again.

Virgin Australia, Air New Zealand

Five per cent of Virgin Australia shares changed hands yesterday. Did Air New Zealand get a piece? If so, why, and who sold the stock?

Tellingly, a 3 per cent stake was exchanged in the moves, which is the maximum Air New Zealand would be allowed to purchase under ‘creeping’ provisions.

Deutsche Bank handled proceedings. Just over a year ago, Deutsche also handled a trade for Air New Zealand for an extra 5 per cent of Virgin via an equity derivative agreement.

But The Australian Financial Review reports that Air New Zealand's boss Christopher Luxon said, just 24 hours before the trade went through, that kind of thing was unlikely to happen.

“We are very comfortable where we are at the moment,” said Luxon at the annual International Air Transport Association conference in Cape Town on Tuesday night.

If that sale went to Air New Zealand, the trans-Tasman carrier would see its stake go above 20 per cent, where you’ve got to lean on creeping provisions to avoid making a full takeover bid.

In April, Singapore Airlines grabbed 10 per cent from Richard Branson’s Virgin Group, boosting its stake to 19.9 per cent.

Etihad Airways is still waiting on regulatory approvals to bump up its stake from 9.9 per cent.

Federation Centres, Challenger

Federation Centres chief executive Steven Sewell is moving at a rate of knots to put the Centro Properties history well and truly in the rear-view mirror.

The retail property investor has offloaded half-stakes in six assets to raise $602 million to Challenger. Federation will retain management of regional centres at Bankstown and Roselands in New South Wales, along with convenience centres in Toormina and Lennox, plus assets in Victoria’s Sunshine and Western Australia’s Karratha.

And in return, Federation will collect half of the portfolio’s $1.2 billion valuation.

“The co-ownership strategy provides Federation with the liquidity and balance sheet flexibility for the future funding of our redevelopment and enhancement program of our portfolio of quality Australian shopping centres,” said Sewell.

This deal comes on the back of similar deals with Perth’s Perron Group in the middle of last year – which racked up $690 million – and super giant ISPT – which generated $371 million.

As Business Spectator’s Stephen Bartholomeusz explained yesterday, the more than $1.6 billion that Sewell has raised through these sales isn't pure necessity. Selling stakes for the sake of redevelopments and future acquisitions also makes strategic sense.

“Federation needed to raise capital without tapping its investors to reduce debt but more particularly to give it the capital to reinvest in a portfolio that had been starved of capital for the five years or so that Centro was in the hands of its bankers. There is considerable redevelopment potential within the portfolio. Sewell also wanted to further simplify his structure.”

Macmahon Holdings, Glencore International

The market demonstrated yesterday once that again that in this time of skinnier capex budgets at the big resource houses, it categorically doesn’t like the mining services firms that will be servicing them less.

Macmahon Holdings shares plunged 11.1 per cent to 16 cents a pop, down 41 per cent in the last six months. The reason was that global resource giant Glencore International suddenly dumped a deal with Macmahon for extension services at its copper mine in Cobar.

No explanation was given from Glencore.

But it wasn’t as big a deal as the share price plunge implies. According to Macmahon, it’s only worth $6 million revenue in 2012/13 and $80 million in 2013/14.

That’s against the $1.6 billion that Macmahon chalked up in 2012. At the beginning of this year, Macmahon signed a $1.8 billion deal with Fortescue Mining Group for its Christmas Creek mine expansion.

And by the way, remember when Sembawang Australia made that consistently incompetent tilt for Macmahon’s construction business that it ultimately ended up selling to major shareholder Leighton Holdings? Back in February, Sembawang said it wasn’t done with Macmahon.

“We’ll be back,” said the rejected suitor.

Well, what happened with that?

Billabong International

Analysts aren’t willing to keep buying the Billabong International story as the board scrambles for asset sales and a refinancing agreement.

Billabong shares continued to fall yesterday, shedding another 6.5 per cent to finish the session at 21.5 cents a pop as analysts cut the embattled surfwear company.

Deutsche Bank analyst Michael Simotas said the profit downgrade heaps yet more on an already stressed balance sheet, JPMorgan’s Shaun Cousins slashed his call to underweight from neutral and Morningstar’s Tim Montague-Jones kept his ‘avoid’ recommendation.

Wrapping up

The Australian Competition and Consumer Commission will close its door to submissions on Perpetual’s $220 million bid for The Trust Company, with a final decision expected in a little over a month.

Meanwhile, The Australian Financial Review understands that Orica has received an $850 million offer for its struggling Minova mining consumables division, but chief executive Ian Smith isn’t biting.

And finally, the Sri Lankan government has announced that gaming billionaire James Packer has teamed up with a local partner for a $350 million investment in the country’s tourism industry.

A 400 room hotel is part of the plan.

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