Building value at Thakral

A solid takeover play for property group Thakral sees its shares sitting at just the right price.

PORTFOLIO POINT: Thakral shares are well priced right now, thanks to a solid bid from Brookfield Asset Management that will probably move higher yet.

Thakral Holdings (THG). While the Brookfield Asset Management bid for hotel and retail property group Thakral was lobbed at 70c, this is well below net tangible asset (NTA) value and almost certainly pitched too cheap.

Thakral shares have traded above the 70c bid price since it came out of a halt on Friday (they were sitting in the 50-60c range prior to that in 2012), and are now at about 75-76c. From three different research reports giving varying NTA for the company – between 85c and 96c a share – the bid as it stands is just too big a discount. Most deals get done within 5% of NTA.

It’s also important that Brookfield holds 38.6% of the company already, which makes a counter-bid from anybody else highly unlikely. It also owns a lot of other assets in Australia through the purchase of Multiplex in 2007, so is familiar with the stock. Brookfield should ultimately get its way on this, but will prefer to have a friendly bid recommended by the board and will have to pay a bit more to achieve this – likely to be at least 81c.

Thakral is finely priced now for investors at 75-76c. It’s not without risk, but there’s an even upside/downside – if the bid is raised to above 80c, there’s about 5c of upside, and if not there’s the same downside. If it starts to drift into the high 70s, I wouldn’t chase too hard, as if it gets to 77c that’s 10% above the bid.

This is a solid bid, with no counterbidder, that will probably get an increase – just don’t overpay.

Spotless (SPT). After so much time spent haggling over this deal, it would be surprising if a bid doesn’t eventuate – though this perplexing situation could still drag on.

Spotless wants $2.80, and has come out and said it will endorse a bid at that level (Pacific Equity Partners’ bid stands at $2.68). Spotless shares closed today at $2.46. Even though private equity is notoriously stingy when it comes to price, if Spotless is worth having then another 5-7c is not going to make this deal impossible.

As with Thakral, the risks here have upsides and downsides. Spotless has traded steadily around $2.40 since November, and if the deal collapses then it will probably retreat to $2.10. So the potential movement is around 30-35c either way.

There is still the possibility PEP could go hostile and take the bid to the shareholders, but debt is a crucial part of this transaction and banks are going to be reluctant to fund an uncertain bid. We already know a big chunk of Spotless shareholders supports the deal, but they probably wouldn’t get the 90% they need.

This is a strange situation – the fact PEP is still there means it wants to do a deal, but the fact they haven’t done it yet is cause for concern. You’d want to be confident of the outcome to get into Spotless at the current price.

Treasury Wine Estates (TWE). There has been renewed talk of a Treasury takeover after James Packer’s Ellerston Capital investment group lifted its stake from 5.03% to 6.1% last week. While Treasury is certainly interesting, and definitely a target since demerging from Foster’s last year, Ellerston itself will never be a bidder for it.

What I would say Ellerston sees is value; it can see the corporate appeal in Treasury Wine Estates, with its near-irreplaceable brands and excellent supply relationships, but the eventual bidder is almost certain to be foreign. There is any number of Asian buyers who would be interested.

Treasury is not without its challenges – there is still a global wine glut and the high Australian dollar discourages foreign buyers – but there is a lot of interest in its product from China, so Bright Foods could emerge as a possibility. Other potential buyers include Wilmar in Singapore, or even Diageo or San Miguel, though they are more into spirits and beer respectively. Treasury closed today at $4.41, a significant increase from the roughly $3.30 it traded at directly after the demerger.

iiNet (IIN). The past week saw M2 Telecommunications (MTU) snap up Primus Telecom, and 165,000 of its customers with it, in another example of the emerging consolidation of second-tier telcos. Of these, one of the better ones as both a potential buyer and target is iiNet, which recently acquired Internode and incidentally had a very good win in the High Court last week.

While Telstra and Optus are out of the takeovers equation, the national broadband network (NBN) raises a lot of very interesting opportunities and I think there’s about to be a land grab in this sector.

They’ll all be competing for customers – names like M2, iiNet, or New Zealand Telecom’s AAPT – but it’s possible we’ll also see the entry of a utility, like Origin Energy or City West Water, looking to bundle services and combine sectors.

Tom Elliott, a director of Beulah Capital and MM&E Capital, may have interests in any of the stocks mentioned.

-Takeover Action April 16-20, 2012
Date Target
ASX
Bidder
(%)
Notes
1/03/2012 Accent Resources
ACS
Xingang Resources
60.65
18/04/2012 Brockman Resources
BRM
Wah Nam International
80.33
9/03/2012 Curnamona Energy
CUY
Havilah Resources
45.40
19/04/2012 Hastings Diversified
HDF
APA Group
20.71
Ext to Apr 30
11/04/2012 Magma Metals
MMW
Panoramic Resources
12.02
Ext to May 10
21/03/2012 Scandinavian Resources
SCR
Hannan's Reward
17.11
18/04/2012 Somerton Energy
SNE
Cooper Energy
19.00
Pre-bid agreement
4/04/2012 UCL Resources
UCL
Minemakers
13.10
Ext to May 8
Schemes of Arrangement
16/04/2012 Aston Resources
AZT
Whitehaven Coal
19.99
Approved
6/03/2012 Gloucester Coal
GCL
Yancoal (Yanzhou Coal)
64.50
64.5% holder Noble Group in favour
10/04/2012 Ludowici
LDW
FLSmidth
22.00
Vote May 31
11/10/2011 Sundance Resources
SDL
Hanlong Mining Investment
17.99
Reverse Takeover
17/02/2012 Millepede International
MPD
Angline Pastoral Pty Ltd
0.00
Angline and shareholders to control 67.6%. Vote early May
Foreshadowed Offers
28/02/2012 Goodman Fielder
GFF
Wilmar International
5.00-
Press speculation
6/02/2012 Spotless Group
SPT
Pacific Equity Partners
19.64
Non-exclusive due diligence

Source: News Bites

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