BREAKFAST DEALS: Why CSR?

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The Bright Food offer for CSR Sugar suggests China's interest in Australia is widening.

CSR, Bright Food Group

CSR's plans to demerge its sugar and renewable energy business have been jolted by an expression of interest from Chinese food giant Bright Food Group, owned by the Shanghai municipal government. In what appears to be an interesting cultural mix, Bright Food subsidiary Shanghai Sugar Cigarette & Wine is looking to hold talks regarding the purchase of CSR Sugar for up to $1.5 billion, above analyst valuations. Shareholders are likely to be tempted by the offer of cash as opposed to the uncertainty of a demerger, and the prospect of an entree to the Chinese marketplace. Still, CSR says it plans to proceed with the proposed demerger, noting the Bright Food development is merely an expression of interest. The company is no doubt heartened by recent strength in sugar prices and equity markets, and mindful that its $375 million capital raising late last year was linked to its demerger. (Deutsche recently lifted its price target for CSR to $2.28 from $2.05, and FY2010 earnings estimate by 4 per cent). In any event, a shareholder meeting is scheduled for next month, with CSR hoping the so-called Sucrogen business will be up and running in the second quarter, although legal wrangling over CSR's asbestos liabilities could delay the process and therefore increase the attractiveness of a trade sale. From a takeover angle, Bright Food's interest in the Australian sugar industry bodes well for local producers and marks a change from the recent M&A focus on resources. Property, financial services, rare earths and natural gas are also tipped by advisers and executives to receive Chinese interest, says the Sydney Morning Herald. The paper adds that the government is believed to be taking a look at how to better manage investment proposals from Chinese state-owned companies, attempting to balance the need for scrutiny with avoiding burdening suitors with cumbersome regulation. Locally, we've already seen the unlisted Tully Sugar of North Queensland battling a takeover offer from the listed Maryborough Sugar Factory, while overseas there was the sale of PSO Poland by Associated British Foods. CSR is working with Lazard and Goldman Sachs; Bright Foods with Rothschild.

Energy Developments, Pacific Equity Partners

The path to compulsory acquisition appears a long one for Pacific Equity Partners, with another shareholder in its target saying it will sit tight on the Energy Developments register. First Samuel has joined major shareholders Investors Mutual and BT Investment Management in opposing PEP's $2.75 per share offer. While PEP is believed to now have more than 50 per cent of the target, the private equity firm will have to make the right noises, and perhaps name another price, to get to 90 per cent of the renewable energy company.

Ramelius Resources, Avoca Resources, Dioro Exploration

The clock is ticking for Ramelius Resources, but the gold producer is digging in amid speculation that rival Avoca Resources will unveil a sweetened offer for Dioro Exploration this week. Ramelius yesterday reminded investors that the value of its sweetened and 'full and final' scrip bid now equals the cash and scrip bid of Avoca. (Ramelius is offering 2.1 of its shares for each Dioro share, while Avoca has 65 cents cash and 0.325 of its shares per Dioro share on the table.) But according to The Australian Financial Review, Avoca could declare an unconditional bid with a boosted scrip component of 0.35, pressuring the Ramelius bid which must close on February 8.

Macarthur Coal, Gloucester Coal, Noble Group

Credit Suisse is unimpressed by Macarthur Coal's recent spate of acquisitions, with analyst Paul McTaggart saying the strategic rationale for the deals worth $1.2 billion was unclear. This comes amid talk that Gloucester majority shareholder Noble Group had first approached Whitehaven Coal with an asset sale proposal last year before striking a deal with Macarthur, according to the AFR, and concerns over Noble's Donaldson Coal. Meanwhile, shares in one-time Gloucester suitor Whitehaven Coal have soared over the past year, most recently on the back of takeover hopes.

Wrapping up

Shareholders in Cytopia have given a big thumbs-up to a takeover from Toronto's YM Biosciences, granting the cancer drug developer access to North American capital markets. YM had offered Cytopia shareholders one of its shares for every 11.737 Cytopia shares, valuing the target at a premium to yesterday's trading. Elsewhere in Canadian pharmaceutical deals, Pharmaxis has signed an agreement to buy Topigen Pharmacueticals, issuing a total of 8.2 million shares for the private Canadian biopharma. And following the appointment of David Livingstone as new Australia chief executive, Credit Suisse has made some more changes to its local equities team. Stephen Rich from UBS will lead the new Real Estate Investments Trust Equities Research team, while Jarrod Martin (of the RBS) will join as a banking analyst. Meanwhile, a $2 million capital raising for gypsum miner Water Wheel Holdings has been delayed. ASIC will not allow securities to be issued for the former milling group once run by John Elliott until January 20, according to The Australian, although the reason for the delay has not been disclosed. And questions are being asked about the future of egg marketer Farm Pride, which has again breached its loan covenants. Farm Pride says it is talking with its bankers, and it is business as usual. Its main banker Westpac Banking Corp raised concerns about the company's debt servicing ability six months ago. Finally, New Zealand dairy giant Fonterra is planning to tap the bond market once more. Fonterra – mooted as possible suitor for Warrnambool Cheese & Butter Factory – has told Bloomberg it will repay €300 million of floating-rate notes due in April with operating cash flows and a "limited" bond issuance.