BREAKFAST DEALS: Woodside story

Woodside's shares have been up recently, perhaps tempting Shell to sell its stake, and Sundance may have locked in a Hanlong deal.

Woodside Petroleum shares have been showing some strength recently, but is it enough to coax Royal Dutch Shell off the register? Meanwhile, could it be that Sundance Resources has bedded down the deal from Hanlong Mining, because that’s what the whispers out of China are saying. Also in iron ore, Atlas Iron is tapping lenders for a bit of extra cash. Elsewhere, Ten remains upbeat that it can get EYE Corp away and a seasoned M&A watcher calls for a ‘put up or shut up’ rule.

Woodside Petroleum, Royal Dutch Shell

An increased production forecast put some fire under Woodside Petroleum shares yesterday, but also provided a timely reminder about the price ceiling of sorts that the oil and gas company sometimes bumps its head on.

Woodside informed the market that its annual production is now expected to come in at 83 to 86 million barrels of oil equivalent, up from a range of 77 to 83.

The news pushed the company’s shares up around 4 per cent by mid-session before easing to finish the day 2.4 per cent up at $35.20. It’s a level Woodside shares haven’t ventured far beyond since mid-2011.

Investors are hesitant to weigh in on Woodside shares because the looming exit of major shareholder Royal Dutch Shell, which was blocked from acquiring the Australian energy company over a decade ago by then Treasurer Peter Costello.

Shell is sitting on about 23 per cent of Woodside and has made it pretty clear that a sale will come at some stage. There have been strong suggestions that it won’t be dropping the stake for less than $35 a share.

And so from thereon in, shareholders have had a good reason to bide there time around $35 a share, knowing that some cheap stock could be out there for a patient.

Now it should be said that Woodside shares have breached $35 a share quite a few times over the last several months, but never by much.

In May, Woodside chief executive Peter Coleman said he had spoken to companies willing to take up parcels of Shell’s stock, which would minimise the downside of an all-out dump.

A month later, Shell boss Peter Voser said he was in "no hurry” to exit the stake. The UK energy giant is, quite rightly so, being very careful not to give too much away about when that day will come.

Perhaps it might come courtesy of another Australian energy play.

Yesterday, Arrow Energy chief executive Andrew Faulkner said he remains confident that cost pressures and competition won’t stop its owners from approving its $20 billion coal-seam-gas to LNG project for its fields in the Bowen and Surat Basins.

Shell owns Arrow in conjunction with Petrochina and the pair is committed to spending as much as $8 billion on the project. A final decision is due at the end of next year.

Six billion dollars from a Woodside sale might come in handy right about then.

Sundance Resources, China Sichuan Hanlong Mining

As followers of Sundance Resources will be aware, this deal isn’t done until it’s done. But we’ve had some positive signs over the last few days.

It started earlier this week, when Sundance chairman George Jones told Reuters that he expects a "positive outcome” from the work it’s doing with suitor China Sichuan Hanlong Mining to secure approval from China Development Bank.

Now The Australian is reporting speculation out of China that Hanlong has actually received the letter from its bank, which will help pave the way for the $1.4 billion deal.

The bank has consistently delayed this agreement, even after Sundance agreed to a reduced offer of 45 cents from 50 cents, as iron ore prices eased from their exuberant highs.

While we’re talking iron ore, Atlas Iron has secured a fully underwritten $US325 million ($314.5 million) loan from Credit Suisse, with Goldman Sachs acting as co-manager, to aid its expansion plans. This goes with the $313 million cash that the company already has sitting in its accounts.

Ten Network, EYE Corp

Ten Network chief executive James Warburton clearly still wants to offload the outdoor advertising business EYE Corp, but not for "any price”.

The man with arguably the hardest job in Australian television right now, a title previously reserved for Nine Entertainment boss David Gyngell, announced a wide-ranging voluntary redundancy program yesterday as the free-to-air network deals with poor ratings in an already tough advertising market.

Ten, facing its second capital raising since the start of June, is still in discussions with CHAMP Private Equity’s Outdoor Media Operations (OMO), but the original sale price of up to $145 million is gone.

It’s quite a turnaround in sentiment for the EYE Corp business. When the sale was first announced, CHAMP was one of three prospective bidders for the company, with APN News & Media and France’s JCDecaux Group also circling.

The competitive bidding process, combined with some strategic rational, had one valuation for EYE Corp sitting at $160 million.

Now, something closer to $120 million could be on the cards.

The potential for another capital raising has many wondering what Ten’s superstar shareholders will do.

The attention for the media interests of mining billionaire Gina Rinehart, for one, has eased as the confrontation with the board of Fairfax Media has died down.

But the slump in iron ore prices has got many onlookers thinking that she’ll need every lack buck to get her Roy Hill iron ore mine locked. There mightn’t be a lot of coin sitting around for Ten in the event that it has to tap shareholders.

Meanwhile, The Australian Financial Review reports that a Rinehart-backed mining services group Mineral Resources is considering a $50 million float of a new lithium company, along with its partner Reed Resources.

That might generate some extra cash.

ASX continuous disclosure

The draft proposal to the ASX’s continuous disclosure rules will be the subject of further consultation and discussion. But as one business commentator points out this morning, these rules do not stand alone as the only regulations at play when directors are weighing up whether to go to market.

The new guidelines have tweaked the definition of "immediately” to mean "promptly and without delay” rather than "yesterday, dammit”.

But as The Australian’s Bryan Frith points out, the context in which disclosure rules have come into play this year is the context of an opportunistic takeover play takeover offer.

Frith, perhaps Australia’s top M&A regulation writer, argues this morning that the reforms underline the Australian market’s need for a ‘put up or shut up rule,’ like the regulations in place in the UK.

The proposed changes will do nothing to address the ‘bear hug’ strategy and that's fair enough as the ASX is concerned with ensuring the market is properly informed; the interaction of the continuous disclosure requirements is a matter for the regulators and the legislators,” writes Frith.

The bear hug is when details of a non-binding, indicative offer are leaked to the media in order to pressure the target’s board into engaging with the suitor. Pacific Equity Partner’s purchase of Spotless Group earlier this year is a classic example (while the suitors did prevail, they were made to earn it by the target’s chairman Peter Smedley).

Under the British system, the indicative, non-binding proposals are allowed, but there’s a four-week time limit at which point they have to come up with a firm offer or hit the bench for six months.

Frith argues that an Australian version of these regulations is long over overdue.


Speaking of non-binding proposals, Australian steelmaker Arrium has begun hauling iron ore from close to Coober Pedy in South Australia to the Port of Darwin, which is a costly exercise.

Asian consortium bidder Steelmakers Australia, headlined by Hong Kong’s Noble Group and South Korea’s POSCO, has gone quiet after lobbing a $1 billion offer that was swiftly rejected.

The Australian Financial Review understands that Noble’s advisory team at Blackstone was the one that threw the deal together and that POSCO makes up less than 20 per cent of the consortium.

Arrium has already made some window dressing moves to make sure shareholders are aware the board is doing everything it can to reduce the $2 billion debt burden and crank up revenue as soon as possible.

Wrapping up

Hospital and pathology company Healthscope has closed down two labs and a minimum of 20 collection centres in NSW following the consumer watchdog’s decision to block Sonic Healthcare from acquiring them.

Healthscope is trying to find another buyer for the business, which is setting them back a bit of cash, but the Australian Competition and Consumer Commission (ACCC) believed that it would give Sonic too much control over the state’s market.

And finally, shopping centre investor Charter Hall Retail REIT is tapping the market for $100 million for cover the purchase of two properties.

It’s picking up the Tamworth City Plaza and Dubbo Shopping Centre in NSW, along with the 50 per cent stakes in Lake Macquarie and Mouth Hutton Shopping Centre that it doesn’t already own.

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