BREAKFAST DEALS: Woodside wait

Woodside moves to free itself, and its share price, of Shell's weight, while the privatisation of Medibank Private looms large.

Woodside Petroleum, Royal Dutch Shell

It was suggested in this column yesterday that what Woodside Petroleum would really like is for Royal Dutch Shell to put action to words and offload its $7 billion stake in the Australian oil and gas company. This would take an enormous weight off the share price. Perhaps it could buy out some of that position itself.

Woodside chief executive Peter Coleman agrees, saying yesterday that a "very broad range of investors” had expressed some interest in buying chunks of Shell’s 24 per cent stake. Coleman added that Woodside has looked at buying out the stake itself, but that’s "probably not the best option for us or our shareholders”. Well, not when you can get someone else to do it.

For some time it’s been understood that Shell doesn’t want to offload its stake for anything less than $35 a share and has time to wait. The share price has moved above that barrier a few times over the last six months but quickly retreated – some say it’s because of the looming sell down from Shell. Coleman added that there’s been no indication of a short-term exit from its major shareholder and that this must be respected. But as Abraham Lincoln said, "Give me six hours to chop down a tree and I’ll spend the first four sharpening the axe.”

Medibank Private

Expectations are growing that Medibank Private will be sold by a Coalition government after the next election. Presuming Labor’s historically dire run in the polls continues, The Age brings word from NIB chief executive Mark Fitzgibbon that he anticipates an Abbott government would float Medibank Private quite quickly. Shadow treasurer Joe Hockey put the privatisation of Medibank Private on the agenda early in 2010. Valuations have tended to indicate that it would be worth at least $2 billion.

It’s a widely held view that the healthy insurance market is ripe for consolidation, though it is a sector dominated by a few big players. Medibank Private has about a third of the market, while the top five health insurers have about 85 per cent of the industry.

The government maintains that holding on to Medibank Private is a crucial tool to keeping premium increases to a minimum, but there’s no reason why a Coalition government couldn’t float the company and then regulate health insurance premiums. In fact, the government already does this. Then again, regulating prices isn’t something that government has done particularly well in some instances. Just ask the telecommunications sector.

Crown

James Packer’s Crown Limited has reportedly got the market talking about Australian dollar bond issues once again. According to The Australian Financial Review, Crown has been talking to local fund managers about a possible issue, expected to be in the region of $200 million with a maturity of four to five years.

Of course, the first thing that comes to mind is what Crown has in store for Echo Entertainment. Things have gone quiet on that front after Packer picked up a 10 per cent stake through a derivative share arrangement. Although Packer has recently been speaking of his admiration of Seven Group billionaire Kerry Stokes, who’s certainly known for being patient.

APN News & Media

APN News & Media chief executive Brett Chenoweth has hired Deutsche Bank to give him some options for the company’s flagging New Zealand business. APN publishes The New Zealand Herald newspaper as well as a large number of other smaller titles and some radio stations. But the business isn’t going so well. Despite a 3 per cent reduction in operating costs, the returns have been down on the prior year, according to Chenoweth.

APN says that it has already received a number of approaches about "potential transactions involving some or all of our New Zealand assets”. This is starting to smell like a sale. The news also comes as APN secures its outdoor advertising joint venture with Quadrant Private Equity.

Brambles, Recall

Pallet giant Brambles is still trying to sell its US document management business Recall as analysts reportedly consider the possibility that it should hold on to the business. Brambles said it’s still targeting an announcement on the "outcome from the divestment process” by May 23. The company made the comment during a trading update to the market where it said sales from continuing operations for the nine months to March had risen by a third compared to the same period last year.

Because Brambles is in such a strong position and the Recall business isn’t in trouble, analysts are starting to hint that Brambles shouldn’t offload the arm without a compelling price. According to The Australian Financial Review, JPMorgan analyst Scott Carroll said Brambles should get at least $US1.8 billion ($1.7 billion) for it.

Dulux Group, Alesco Corporation

Dulux Group and Alesco Corporation apparently haven’t really spoken to each other yet. Media reports indicate that Dulux hasn’t finalised the bidders statement for its $188 million takeover proposal, at $2 a share. Dulux has already grabbed almost 20 per cent of the target.

There’s also an interesting gulf opening up between what the market expects and what the analysts conclude. The market has put the slightest of premiums on the Alesco share price. It’s trading at $2.01 indicating many shareholders have no insurance policy against this deal not getting up, while believing there’s a slight chance of an improved offer. The problem is, analysts are broadly concluding that this is a great deal for Alesco – with that 43 per cent premium – and a dud for Dulux.

Wrapping up

Listed Australian property developer Thakral Holdings has reportedly begun its defence against Brookfield Asset Management’s $410 million takeover proposal. The Australian Financial Review reports that Thakral has tapped Macquarie Capital to run its defence strategy, with the company having already indicated that 70 cents a share is insufficient.

Meanwhile, Origin Energy has dealt itself into such a strong position with its own coal seam gas routine in Queensland that it has sold 365 petajoules of gas (one for every day of the year?) to the two-train $15.5 billion Gladstone Liquefied Natural Gas project from its rival Santos.

And finally, Telstra Corporation chief executive David Thodey has spoken of pay TV as being part of the company’s strategy to dominate the post-NBN world, reinforcing his desire to increase the company’s stake in Foxtel. However, speaking to the Macquarie Australasian Equity Conference, Thodey also laid out the other areas that Telstra is thinking about expanding in to, which would obviously raise the possibility of acquisitions. They are media, online services and Asia.

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