BREAKFAST DEALS: Woolworths spin-off

Woolworths shareholders are tipped to back the SCA Property spin-off, and Sir Ron Brierly seeks a bigger Murchison Metals stake.

Woolworths is expected to get its SCA Property Group spin-off approved by its shareholders today with hardly a hint of opposition. Sir Ron Brierly has his foot on a much bigger share of Murchison Metals. Meanwhile, Rio Tinto looks like it’s holding on to Ivanhoe Australia, Alcoa of Australia is joining Fortescue Metals Group in the search for shale and WestSide Corporation has apparently swapped suitors.

Woolworths, SCA Property Group

Australian supermarket giant Woolworths should win strong support from shareholders today for its plan to spin off SCA Property Group.

The retailer holds its annual general meeting today and advisers Moelis & Co and Citigroup would be supremely confident that the plan, to spin off 69 shopping centres into a $1.4 billion real estate property trust, will get over the 50 per cent threshold.

One share in SCA will be created for every five Woolworths shares on issue, with the trust looking to raise up to $506 million to aid the move. This is also expected to receive strong support from the market.

Late last week, S&P Dow Jones Indices said that SCA would be added to the ASX200 index on November 23 if shareholders approve the deal. The McGraw-Hill subsidiary added that no company would be removed from the index just yet, as the spin-off announcement comes too close to the December quarterly review and "other upcoming M&A activity”.

The decision will raise at least $850 million for the Woolworths balance sheet as both supermarket giants look for extra firepower to put towards getting customers through the door and spending more.

Broadly speaking, traditional local retailers are having to cut prices to get customers to open their wallets as the economy, particularly the east coast, underwhelms. They’re also facing increasing competition from online retailers, although the grocery market is still well covered by Woolworths and Coles.

Speaking of Coles, we still haven’t heard anything from owner Wesfarmers, which is reportedly thinking about a property ownership switch of its own.

Reports from the middle of October indicated that Wesfarmers is considering a $700 million unlisted real estate trust spin-off.

Murchison Metals, Mercantile Investment Co

Sir Ron is on! Famous corporate raider Sir Ron Brierly has tightened his grip on Murchison Metals through his new vehicle Mercantile Investment Co, making the positions of the two directors he’s gunning for more tenuous.

A notice to the ASX yesterday indicates that Mercantile has increased its stake in Murchison to 17 per cent from 11.7 per cent. It wasn’t an expensive move with Murchison shares changing hands at 4 cents.

Sir Ron is exploiting the discontent amongst Murchison shareholders about the cost that’s being accumulated to wind up the company. It should be noted that the target has objected to this characterisation.

He’s calling for the removal of chairman Ken Scott-Mackenzie and managing director Greg Martin.

It should be said that his 17 per cent stake does not reflect the levels of discontent within the Murchison register.

The company has gone from a 50:50 partner in the crucial Oakajee Port & Rail project with Japanese giant Mitsubishi, to a mere shell company that’s returning funds to shareholders.

Sir Ron appears to believe that there’s enough frustration still in the register to object to the way $7.6 million is apparently being spent on the wind up process.

Ivanhoe Australia, Rio Tinto

It appears that mining giant Rio Tinto isn’t planning on getting rid of Ivanhoe Australia, at least for the moment.

The copper-gold miner announced yesterday that it would tap investors for $80 million to help pay off debts and fund infrastructure and exploration.

Ivanhoe’s major shareholder Turquoise Hill, which is half-owned by Rio, said it would provide $40 million worth of capital to the three-for-10 renounceable rights issue. Turquoise Hill will end up with 57.7 per cent of Ivanhoe Australia at the conclusion of the offer.

The issue is at 48 cents a share, which is an 11.1 per cent discount to the previous closing price, which isn’t too bad at all.

When Rio secured majority control of Ivanhoe’s Canadian parent Ivanhoe Mines, founderd by Robert Friedland, the suspicion was that they were only interested in the $10 billion Oyu Tolgoi copper-gold project in Mongolia and might offload the rest of it.

That hasn’t turned out to be the case, as of yet. While Rio would probably like to simplify its books and focus on the big stuff, in many ways it’s a buyers market and Rio would be well advised to hold on to what it doesn’t particularly want if there’s a better price tag down the road.

Indeed, that appears to be the strategy with Pacific Aluminium, which Rio put up for review a year ago.

Alcoa of Australia

Speaking of aluminium, Alcoa of Australia chief executive Alan Cransberg has reportedly revealed that his company has forked out almost $200 million on shale gas investments.

According to media reports, Cransberg said yesterday the large energy consumer is highly likely to make more splashes in the market to ensure its energy security.

Aluminium is a terribly beaten down sector, having been dealing with oversupply issues, which push prices down, for years.

Alcoa is taking a proactive approach, in the same fashion as iron ore miner Fortescue Metals Group, in securing energy supply by investing in the emerging shale gas sector.

Fortescue revealed just last week that it’s in negotiations to purchase a stake in an Australian shale gas explorer.

WestSide Corporation, Liquefied Natural Gas Ltd

A Queensland coal seam gas explorer has been left in the positive, but nevertheless odd, circumstances of waving goodbye to a publicly acknowledged bidder just as an unnamed player enters the fray.

Liquefied Natural Gas Ltd has confirmed that after a lengthy due diligence process, it will not be submitting a firm offer for WestSide.

The market didn’t have long to digest that news because WestSide has announced that an unnamed bidder has emerged with a tentative, indicative proposal for the company valuing it at $185 million.

The stock closed yesterday up 3.9 per cent at 40 cents a share, giving it a total market cap of $142 million.

The company hasn’t yet decided whether the proposal represents fair value. For the sake of both sides, WestSide will not solicit any more offers over the next three weeks as the bidder conducts its due diligence and the board evaluates whether $185 million is a decent price.

Wrapping up

As this column pointed out yesterday, it’s difficult to tell just what degree of trouble coal tycoon Nathan Tinkler is in, simply because we don’t definitively know how much debt he’s carrying. We can only go on indications.

But news that another private vehicle, Patinack Farm Administration, has been given the wind-up notice by an Australian court doesn’t bode well for the famous punter.

Media reports indicate that his spokesperson claims the $16,978 payment to WorkCover has been paid, but an administrative error delayed it beyond the deadline.

This speaks not to liquidity, but to institutional competence. Either way, the news is uninspiring.

Meanwhile, Echo Entertainment chairman John O’Neill will be very happy with his appointment of former Macquarie Bank boss Richard Sheppard to the board as he prepares for a Sydney casino battle with gaming billionaire James Packer.

Turning to property, The Australian believes that General Electric has pulled most of its $500 million property portfolio from the market, which is a curious about-face.

Apparently the only real item left on the block is the Perth Allendale Square tower, which is believed to be in due diligence with Investa.

Speaking of Investa, the same newspaper also believes that the company is having a look at Grosvenor’s $400 million Brisbane office building, with Dexus Property Group also showing interest.

The Australian Financial Review reports that pokies kingpin Len Ainsworth is planning to sell down more of his controlling stake in Ainsworth Game Technology, which has been a bit of a market favourite.

And finally, as the Australian government sells another $600 million in federal bonds, dated July 15, 2022, the opposition has unveiled plans to grow the domestic retail corporate bonds market, attacking Labor’s slow progress on the way.

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