BREAKFAST DEALS: Woodside warmth

Woodside's special dividend call could trigger a Shell rethink, while Virgin's ready to take the fight to Qantas.

Woodside Petroleum has made shareholders happy and perhaps made one big shareholder happy enough to say goodbye. Virgin Australia is celebrating what was probably an inevitable victory in winning approval for a controlling stake in Tiger Australia. Meanwhile, the Billabong International saga drags on, a company from Oman offers a premium for an ASX partner that's too good to pass up and there's some movement in the retail sector.

Woodside Petroleum, Royal Dutch Shell

Woodside Petroleum chief executive Peter Coleman could have radically changed the dynamics influencing major shareholder Royal Dutch Shell about whether to exit the register of its former takeover target.

Shell has let word leak out that the minimum level it would consider selling out of Woodside stock is round $35, probably higher given its lack of activity since. This has put some weight on the stock around that level because the UK giant still owns 23 per cent of the Australian oil and gas company.

Until now, it’s been a classic stand-off between a big seller without a timetable and disinterested buyers with other compelling options in oil and gas.

Woodside shares shot through the $35 mark yesterday, finishing the session up 9.7 per cent to $37.96. The surge came on the back of Coleman's announcement that Woodside will pay a fully franked special dividend of 63 cents a share and increase its payout ratio to 80 per cent from 55 per cent.

Coleman did flag the move when the energy player shelved previous big spending plans, adding that the company would "consider additional measures to accelerate the returns to investors". But the market didn't really bite and the stock stayed relatively subdued.

Not anymore, now that Woodside is a yield play. It has gone from paying a 3.3 per cent dividend yield to 6 per cent before franking credits are factored in. Those are 'big four' bank numbers and we know what happened to their share prices over the last four months.

Breakfast Deals is not suggesting that Woodside is in for a rally of anything like that experienced by lenders like Commonwealth Bank of Australia, which incidentally left the $100 billion market cap barrier behind and has now risen to $112.2 billion.

But Woodside's trading profile has been thoroughly changed. It could well be that over the next six months Shell can start thinking about cashing out at $40 a share, rather than $35.

Nothing's done yet, obviously. Unlike the big four banks, Woodside is exposed to the tumultuous reality that is the global commodities market. Just yesterday, Australia's largest gold company Newcrest Mining announced that it is reviewing the future of some mines with "considerable" focus. This is thanks in large part to the recent slide in the precious metal.

But in today's market, yield is king. The case for buying Woodside has been significantly changed and the dividend policy is there for the foreseeable future. Perhaps this will be the move that finally leads Shell to cash out and spend that $8.7 billion elsewhere.

Virgin Australia, Tiger Australia

Consumer watchdog boss Rod Sims has effectively agreed to let Australia return to an airline duopoly, first allowing Virgin Australia's acquisition of SkyWest and now its 60 per cent stake in Tiger Australia.

The Australian Competition and Consumer Commission gave its blessing to the stake purchase yesterday, the most important regulatory tick of approval that Virgin' chief executive John Borghetti needed.

Virgin and Tiger had been using the 'failing force' argument, which means there's a good chance that the Singapore Airlines-backed carrier would probably remove itself from the market if Virgin wasn't allowed to come in.

“In six years in Australia, Tiger has never made an operating profit, and its current losses are large. These losses remain a big drag on the entire Tiger group,” Mr Sims said.

Sims had shown signs of hesitation in approving the Virgin deal in recent weeks, despite giving the go-ahead to the five-year alliance between Qantas Airways and Emirates.

The crucial difference between the two is that Qantas was seeking an alliance to take the losses out of its European services, while Virgin was reaching for control of a domestic competitor. That competitor might have been rubbish – but it’s still a competitor in a market with very few.

In the end, the ACCC had to concede that Australians have been getting a sweet deal with airline fares, and routes cannot generate an unacceptable rate of return, or a loss, forever.

Once you face the truth that Singapore Airlines wouldn't back Tiger after a certain point and that its resources would be pulled from the market, it's easy to see that it's in the interest if the Australian consumer for the second-largest player in the market (out of two) to be strengthened.

Now Virgin has its both its namesake brand and Tiger for the low-cost market, plus SkyWest for regional flights, to go up against Qantas, Jetstar and QantasLink, respectfully

You can tell from Qantas' unconvincing response to the decision that it's the right one.

"The Qantas Group has generally supported tie-ups between airlines," it said.

“We’re comfortable with our position as the leading full-service airline, the leading regional airline and the leading low fares airline in the Australian market."

The leading full-services airline... out of two. If Tiger had been allowed to limp on, Qantas could have snared a bigger slice of the market.

Billabong International, Paul Naude, Sycamore Partners

Billabong International failed to update the market yesterday on the result of the 10 days of exclusive discussions with former director Paul Naude and New York-backed Sycamore Partners over a $287 million takeover at 60 cents a share.

The stock price fell 2 per cent to finish at 48 cents. The shareholders want out, badly.

Billabong's spokesperson is fighting suggestions in The Australian Financial Review that Sycamore has been frustrated by delays in receiving key documents.

"The team continues to work tirelessly and co-operatively, as it has done for almost four months. Any suggestion that information has been held back is entirely incorrect," the spokesman said.

The report didn't specifically suggest that Billabong was holding documents back, simply that it hadn't delivered them. Perhaps documents on the quality of future earnings in a company is in as much trouble as Billabong are difficult to produce by their very nature.

This could be Naude-Sycamore buying more time via the media, or Billabong carefully denying a suggestion that wasn't made.

Either way, another day passes without an announcement. News is expected today, but frankly, Breakfast Deals is tired of speculating. If it happens, and you're interested, then you'll be pleased – but don't be surprised if they say the bidder needs even more time.

Mawarid Mining, UCL Resources

Oman's Mawarid Mining left nothing to chance yesterday with a $32.1 million offer for ASX-listed UCL Resources.

The company, which started the day with a 19 per cent stake in the target, revealed a cash takeover offer of 31 cents a share, which was a casual 180 per cent premium to the previous trading price. That might do...

By the end of the day, Mawarid had 49.7 per cent of UCL, thanks almost entirely to the decision by multi-millionaire John Kahlbetzer, who is increasingly moving out of farmland and into mining, to take a deal that's impossible to pass up.

UCL and Mawarid both own a 42.5 per cent stake each in the Sandpiper marine deposit off the coast of Namibia. The remaining 15 per cent is owned by Namibia's Tungeni Investments, which aims to increase the fortunes of women in the African country and benefit the families of its shareholders.

Staying true to the principles of due diligence, the UCL board said it would throw its support behind the offer provided that the independent directors, apart from Dr Mohammed al-Barwani, are satisfied.

Dr al-Barwani is a partner with Mawarid's parent company MB Holdings and UCL stated that he has had nothing to do with the company's deliberations of the Mawarid offer.

The independent expert probably won't have time to get their pants on before Mawarid gets a majority of the register anyway.

Wrapping up

In retail, PricewaterhouseCoopers is exploring sale options for Fusion Retail Brands after a request from is owners, which includes Japan's Nomura Holdings and America's Anchorage Capital Partners, according to MoneyBeat.

Meanwhile, we'll never know what the conditions of the settlement between designer Kym Ellery and department store Myer were – apparently she's covering some of the retailer's legal bills. But one would assume that Ellery has traded the public apology to Myer in exchange for something – probably consent to allow her to supply rival David Jones, or a reduced share of the legal costs. The bottom line is that fashion designers will have to come up with a unique set of bargaining circumstances to be able to sell their lines to both retailers. The department stores want exclusive deals. The apology underlines this.

Also in retail, The Reject Shop is thumbing its thrifty nose at the retail crunch with a $40 million capital raising for new stores. Macquarie Capital is underwriting $30 million of the placement, with the remaining $10 million coming from a non-underwritten share purchase plan.

At $16.20 a share representing a little over 7 per cent of total issued capital, the discount retailer is raising cash at just a 3.1 per cent discount to the last traded price. While we'll reserve judgment until the entitlement take-up numbers are completed, it should be noted that there probably isn't another significant retailer on the ASX that could think about raising capital with such a skinny discount.

And finally, rare earths hopeful Peak Resources is hoping to have a funding deal done by next month that would bring is Ngualla project into production.

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