Breakfast Deals: Woolworths’ Supa sprawl

The ACCC ticks off Woolworths’ latest IGA grab, while investors are nervous about ADM's GrainCorp takeover.

The Australian Competition and Consumer Commission has given the go ahead to Woolworth for three supermarkets for eastern Queensland. But questions remain about the requirements that the supermarket giants might face as they expand. Meanwhile, GrainCorp is in the spotlight thanks to the federal election yet again, Qantas Airways has fired off its defence business for a tidy sum and Resimac has won the day for RHG.

Woolworths, IGA

Retail giant Woolworths has received the all clear from the competition watchdog to buy three supermarkets in eastern Queensland. The Supa IGA sites – two in Townsville and one on Bribie Island – will increase Woolworths’ market share, but not likely to the detriment of consumer choice, according to the Australian Competition and Consumer Commission.

The competition watchdog did note, however, that the lack of alternative buyers for two of the properties contributed to the ruling in favour of Woolworths.

It was one of those ‘we don’t really like it but the alternative is worse’ responses from the ACCC.

The development helps clear the waters on supermarket competition a little bit. Since Woolworths met opposition from the ACCC in June for a development in Glenmore Park, New South Wales, the watchdog has approved four Supa IGA buys from Woolies (these three plus one in the Australian Capital Territory in July).

Aside from the distressed sales, the main reason for approval has been that the number of options operating in the vicinity will remain intact. That is all well and good in theory when, in the case of the July ACT buy, you have a Coles, Aldi and Supa IGA in one area becoming a Coles, Aldi and Woolworths.

But the question remains: What happens when you have merely a Coles and an IGA? Is Woolworths able to buy the IGA out?

The election might dull it as a political talking point, but the issue of the power of our major supermarkets will linger like the ghost of a certain once spurned leader.

GrainCorp, Archer Daniels Midland

Speaking of the election, it’s difficult to tell whether Nationals leader Warren Truss was doing little more than stating the obvious at the National Press Club yesterday.

Speaking on perhaps the most contentious issue within the Coalition, the $3.4 billion offer for GrainCorp from US giant Archer Daniels Midland, Truss repeated his party’s reservations and arguably played down how consequential those reservations will be.

“The decision about whether the application will be approved is made by the treasurer – it's not made by the government, it's not made by the parliament, it's made by the treasurer of the day,” Truss said.

That man is likely to be current Opposition treasurer Joe Hockey. It’s true the treasurer makes these decisions and also has an unusual degree of political autonomy. But it’s not true to say they make the decision in a vacuum.

Best of luck Mr Hockey. It’s fun to speculate on whether Truss is emphasising that the pressure is on Hockey, or laying the groundwork for some sort of appeasement for Nationals voters should the GrainCorp deal go through.

It’s a lot of fun and ultimately useless.

Truss reiterated the concerns the Nationals have about the prospect of ADM, which has temporarily withdrawn its GrainCorp application from the Foreign Investment Review Board while the election takes place, taking out such a significant infrastructure owner.

“I have indicated that I have serious reservations about whether the sale of GrainCorp to ADM is in the national interest,” Truss said.

The likely incoming deputy prime minister isn’t keen on the idea of almost all east coast grain terminals falling under the roof of a foreign entity, as would happen under the sale.

“And that to me leads to real questions of whether we would therefore lose control over our own destiny, our own capacity to make decisions about whether we want to expand our grain industry, whether we want to be the food bowl of Asia.

“Those sorts of decisions would no longer be able to be made in Australia, they'd essentially be made in boardrooms in the United States or other parts of the world.”

So what are we to make of all this? Well, perhaps the best thing to do is to look at the GrainCorp share price to see how confident shareholders are of the $13.20 a share bid going through. 

The stock is trading at $12.42, which is a 6 per cent discount on the headline number.

That’s definitely showing some nervousness on the register, which is understandable given that the stock was trading at less than $9 before ADM came knocking.

Sure, GrainCorp’s fortunes might have improved in the eyes of shareholders since ADM popped up. But, that’s a lot of potential downside.

Qantas Airways

While Qantas was making headlines for its profit – yes, it made one – the national carrier was also offloading its defence business for a tidy $80 million.

The fifth largest US military contractor, Northrop Grumman, made the purchase of Qantas Defence Services as part of plans to broaden its international reach. 

The Qantas subsidiary has over 300 employees and offers integrated logistics, sustainment and modernisation support to Australian government and military customers, including the RAAF and Royal Australian Navy.

The decision to sell was part of Qantas’ policy to offload non-core assets. The next thing on the agenda could be the early return of airport leases.

RHG, Resimac

Loan book manager RHG has said yes to an all-cash takeover bid by Resimac valued at $153 million over a rival cash-and-scrip offer.

Resimac moved last week to snuff out a competing bid from Pepper Australia and RHG shareholder Credence Capital by increasing its all-cash offer to 49.5 cents a share, from 48 cents.

The Pepper-Credence consortium was offering 35 cents a share and one Credence share for every RHG share.

As expected, the RHG board wasn’t keen on the idea of scrip-for-scrip when there’s an all-cash bid on the table and opted for the Resimac offer, which it believes delivers an “outcome that is superior” for shareholders.

Both bidders were seeking a scheme of arrangement with RHG, formerly known as RAMS Mortgage Corp.

Wrapping up

Ramsay Health Care is on the lookout for more hospitals in Asia following the successful forging of a joint venture with Sime Darby Berhad in Malaysia.

"Partnering with Sime Darby provides Ramsay with a platform to expand further throughout Asia, leveraging off Ramsay's significant healthcare management experience and Sime Darby's extensive Asian networks," Ramsay managing director Christopher Rex said yesterday.

Watch that space.

In resources, Perth’s Forge Group is set to win a mouth-watering $1.6 billion engineering, procurement and construction deal with Gina Rinehart’s Roy Hill iron ore project, according to The Australian Financial Review.

Nine Entertainment is reportedly understood close to sealing a debt deal for the acquisition of the Perth TV licence from WIN.

The Australian Financial Review carries the story. It’s an important bit of information because once the WIN deal is settled Nine will have close to $1 billion in debt and those reports of moves towards an IPO, sooner than expected, make a lot of sense.

A listed mining company controlled by Melbourne’s renowned Joseph Gutnick has received a takeover offer from Singapore’s LionGold.

And finally, the corporate regulator’s deadline for feedback on the Queensland Motorway’s offer for RiverCity’s $600 million CLEM7 toll road is due today (Friday).