BREAKFAST DEALS: Wesfarmers forage

Wesfarmers looks to be on the prowl again, while steady market gains put Perpetual back in the game.

Wesfarmers chief executive Richard Goyder isn’t giving much away by the way of specifics, but he clearly feels he has more room to move from shareholders to buy assets and hold the coal. Share price movements have put more pressure on Nathan Tinkler and brought redemption for Perpetual. And the media sector is absolutely abuzz with possible deals as Canberra contemplates legislative change.


Wesfarmers boss Richard Goyder has been doing the media rounds and left everyone with a distinct impression – the days of acquisitions are back for the Western Australian conglomerate.

Well, the chief executive didn’t put it in terms so blunt, but he’s left investors with the impression that the Coles acquisition and improvement has now been sufficiently fulfilled that Wesfarmers can start to look at other opportunities.

Speaking to The Australian, Goyder declined to offer any specifics, with speculation having once indicated that Wesfarmers was interests in Kerry Stokes' Coates Hire. By the way, last week Seven Group chief executive Peter Gammell said an IPO for Coates was not on the cards, only that a trade sale remained its preferred option.

"If there's an opportunity for us to create value for all our stakeholders, particularly our shareholders, (we need to) to take that risk,” said Goyder.

"I think it has been easy for a while for people to say ‘no’, and we need to move back to a position where people are going to say ‘yes, we can do this for these reasons’.”

If Goyder had made those comments 18 months ago he would have been ripped asunder.

Not just that, speaking to Business Spectator’s KGB TV last week in Goyder made it clear that the coal business that has been so maligned by the press will be staying.

When Business Spectator columnist Robert Gottliebsen asked Goyder whether Wesfarmers would consider purchasing more coal assets the Wesfarmers boss replied, "Absolutely”.

To be clear, Goyder added that Wesfarmers wasn’t looking to buy coal.

"We’d consider anything that can make a return for our shareholders,” said Goyder. "So, we’d consider more coal, we’d consider more retail, we’d consider more industrial businesses and, indeed if we felt an investment in insurance was going to be a good investment for our shareholders in the long run, we’d invest in insurance."

That doesn’t sound like the words of a chief executive still dealing with phone calls from institutional investors complaining about the crash on return-on-equity on the back of the Coles acquisition.

It’s been clear for some time that Goyder’s turnaround story, though risky, has worked. This is yet more evidence of the extent of that triumph.

Speaking of coal, Whitehaven Coal shares slipped 4.3 per cent to back to fresh four-year lows as the cash-crunch story of key shareholder Nathan Tinkler continued.

His luxury Dassault Falcon jet and Agusta helicopter have been put up for sale and there’s a public examination of his company Mulsanne Resources scheduled for this week.

That 19.4 per cent stake that Tinkler holds in Whitehaven is widely believed to be held against a debt of $700 million with Farallon Capital. With the stake, TInkler’s primary asset, now worth $527 million, that’s a problem.

Perpetual Limited

While we’re talking about selling pressure thanks to equity fluctuations, let’s take a moment to celebrate a triumphant return of a once routinely savaged former takeover target, Perpetual Limited.

Perpetual was pilloried for knocking back private equity player Kohlberg Kravis Roberts at $38-$40 a share back in late 2010. By the end of 2011 the stock was worth half that and the register was, well, pissed?

The investment manager’s stock priced has rallied a staggering 47 per cent since November 1. Importantly, it’s back above that $40 mark.

While most of the rally can be put down to the rekindling of equities, brought about largely by the money printing from Federal Reserve Chairman Ben Bernanke, the register took kindly to the cost-cutting measures rolled out by chief executive Geoff Lloyd. He was the fund manager’s third boss at the time of his appointment.

The financial sector is abuzz with the potential for M&A. ANZ Bank boss Mike Smith brought up the topic of the four pillars policy in The Australian this morning, which will lead precisely nowhere.

While it’s probably nave to speculate that Perpetual could be eyeing targets of its own, given that it’s register has only just got its breath back, it’s worth acknowledging the rapidly different mood around the stock.

Nine Entertainment, Ten Network, Southern Cross Media, News Limited, Melbourne Storm

Indeed, this mornings M&A discussion is all about rising and falling equities, as well as timing.

Media reports have pointed to merger discussions between Nine Entertainment and Southern Cross Media Group, which owns a regional television network along with a set of radio assets.

Obviously, no one’s talking publicly about anything of the sort, but we all know why these stories are popping up.

Communications Minister Stephen Conroy has come to the realisation that the internet has made the ‘reach’ restrictions on Australian media companies redundant. Change is coming to media regulation and deals will follow.

It explains why Seven Group Holdings billionaire Kerry Stokes is grabbing a small slice of Ten Network (which surged 9 per cent on Friday on the news) – because four billionaires on the register of a company with a market cap of $931 million just isn’t enough now, is it?

Stokes, who is sitting on over $400 million in cash, has many options at his disposal. He could try to find a way to pick up Seven’s regional affiliate Prime Media Group, valued at $395 million. However, there’s been no indication of this move yet.

The likely legislative changes also explain the Nine-Southern Cross talk reports, although once upon a time they would have seemed confusing.

Nine used to have an affiliation deal with Bruce Gordon’s regional broadcaster WIN Television, but that expired last year. Ten has a similar deal with Southern Cross Media, but with the agreement set to expire in June, reports have emerged that discussions aren’t progressing as quickly as expected.

And of course, WIN’s Gordon sits on the board of Ten.

It appears everyone’s either holding their position, or staking a position, for when the changes come through so they have maximum options and/or leverage.

So what was that bit about timing. Well, imagine if these changes came in 12 months ago, when Nine was still owned by private equity player CVC Asia Pacific, which was just waiting for its debt deals to run out.

Nine would have been hopelessly distracted and Ten’s share price would be more than double what it is now.

And just while we’ve got you media watchers, News Corp (parent company of this website) is set to announce that it has offloaded its 44 per cent stake in New Zealand’s Sky Network Television for $660 million, while The Australian Financial Review reports that News has found a UK party keen on taking defending NRL champion the Melbourne Storm off its hands.

Aurora Oil & Gas

The low Henry Hub gas price hasn’t stopped ASX-listed Texas shale gas player Aurora Oil & Gas from acting on its ambitions.

The company has picked up more acreage in the liquids-rich Eagle Ford shale regions for $US117.5 million ($115 million). It’s a 14 per cent increase in Aurora’s acreage and a 12 per cent increase in production.

Some shale deposits can produce large quantities of liquids (oil) as well, which produces can lean on if the price is gas is too low. BHP Billion, one of the region’s largest players, is doing that on some sites right now.

Aurora will control production of the acreage, which are next to its Sugarfield assets that are controlled by a joint venture partner called Marathon Oil.

The purchase and development costs are expected to be covered by existing debt, as well as a new facilitiy with Credit Suisse and UBS.

Wrapping up

Listed property player GPT Group has picked up a 50 per cent stake in the Ernst & Young building in Melbourne for $320 million, according to The Australian Financial Review.

The purchase was made through its top shelf unlisted property fund, which has taken the stake of Cbus Property.

More importantly, the same newspaper also reports that South Africa’s Investec is planning a listing of a $400 million-plus property vehicle, for it is stockpiling assets for. Property is hot at the moment, the environment is ripe for such a move.

And finally, Telstra boss David Thodey has emphatically repeated that it will hold the Coalition to the NBN-deal that it secured with Labor.


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