Buru Energy lights up

Buru Energy. Today Buru Energy (BRU), the spin-off of Arc Energy (ARQ) and Australian Worldwide Exploration (AWE), made a good trading debut; starting the day at 26¢, it rose to a high of 34¢ before closing at 30.5¢. Buru contains both companies’ exploration properties plus about $79 million of cash.

I reckon it’s worth anywhere from 30¢ to 60¢ a share, depending on how you value the cash and what sort of discount you put on it, and how you value its exploration potential. There could be some selling from Arc shareholders who have accepted the bid. Having said that, there are a lot of people out there who want to back Eric Streitberg, the former chief executive of Arc who is now the chairman of Buru.

Essentially, it’s a cashed-up explorer with lots of interesting properties around Australia, and it’ll be engaging in a pretty comprehensive drilling program starting very soon. So that’s one to look at.

Origin Energy/BG Group. Origin (ORG) had its profit result out last week; it was pretty solid, no surprises either bad or good, which isn’t a bad thing. It has promised to announce its coal seam methane gas partner by the end of this month, and that’s when it will also publish the independent expert’s report, which will assess if there is a separate deal, what that deal is, versus the BG bid at $15.50. I still think this is interesting; it’s in the right sector, you’re often able to pick up the stock at about $15.80, which is only two to two and a bit percent over the bid. I have a feeling that unless there’s a genuine other bid, BG probably won’t lift its bid. So with BG sitting there at $15.50, if you buy Origin stock at $16, the downside is 3%, but the upside is uncertain at this stage.

Queensland Gas & Sunshine Gas. BG probably doesn’t need to take over Queensland Gas (QGC), because it already has a big stake in it, and Queensland Gas is, of course, taking over Sunshine Gas (SHG), which is another interesting takeover. Sunshine Gas shares are trading at around a 1–1.5% discount to the Sunshine bid. I don’t think, however, anybody else is going to have a crack at Sunshine. Queensland Gas is the obvious group to buy it.

BG still has big contracts in this part of the world that it has to fulfil and that’s why it wants to buy Origin. It does have alternatives: its alliance with Queensland Gas will go a long way to helping it fulfil some of those contracts. If it buys Origin, it satisfies all its needs in one fell swoop, but it pays a lot of money to do so. With Queensland Gas, maybe it does take it over at some stage anyway.

There’s clearly a lot of interest in this space, and Queensland’s a great spot to do it all because you’ve got the infrastructure in place there. The other spot is the north-west of Western Australia, but there’s only one big company there, and that, of course is Woodside Petroleum. I don’t think anybody is going to have a crack at Woodside, because the last time someone did that the then federal Treasurer, Peter Costello, ruled against it. Still, it’s not impossible, and Woodside’s one of those companies that Shell or some other oil multinational could always have another go at.

Mortgage Choice/Count Financial. Mortgage broker Mortgage Choice (MOC) has knocked back a $1.05 per share bid by wealth manager Count Financial (COU). The reason it was knocked back is because one of the founding shareholders and non-executive chairman, Peter Ritchie, said he was not going to accept it.

To me, it’s odd that Count Financial wants to buy Mortgage Choice. I think the rationale is that it wants to sell other products like superannuation products through a mortgage broker. There’s not much of a history of that working particularly well. You know, banks used to think that they should own insurance companies and they could sell insurance products to their banking customers, and that never really worked. The only example of that left in Australia is Suncorp-Metway (SUN), which may itself be a takeover target, although it’s probably less of a takeover target because it’s got all this insurance exposure.

But if I were a minority Mortgage Choice shareholder, I’d be more inclined to take an offer than not, because the big banks are slashing their commission rates at the moment, and that could really hurt its profits for a few years. The banks just don’t feel they need to pay third-party distribution channels. People have no choice but to go and borrow money from the banks now. Although brokers are popular, if brokers can’t get you a better deal, then people will just go back to walking into branches '¦ a very old-fashioned concept in banking.

BankWest/National Australia Bank and Commonwealth Bank of Australia. The big issue now is whether HBOS wants to sell BankWest, the Perth-based former Bank of Western Australia. Over the weekend, a British newspaper reported that National Australia Bank and the Commonwealth Bank were in talks with HBOS to buy BankWest.

I think the Commonwealth and National Australia Bank would be interested in it, but only at the right price. They said today (September 1) they have no comment on reports out of the UK.

I think it really comes down to whether HBOS simply has to sell because it needs the money; HBOS recently had a huge rights issue, and it may well do so.

According to the report, the banks were talking about the retail business with advisers, but were not so keen on HBOS's local businesses, such as St Andrews Australia, which is a wealth manager, and Capital Finance and BOS International.

It's been said the NAB or CBA would have to pay a fair bit to get HBOS to sell. Having said, HBOS has been struggling of late, and the local banks are doing quite nicely, so perhaps not.

In any event, a bid would raise all sorts of ACCC issues.

Macarthur Cook/IOOF. Another example of that is MacarthurCook and IOOF. MacarthurCook knocked back a takeover at $1.35 that was launched by AMP, and then proceeded to raise money to give a 13% shareholding to IOOF for $1.15 a share. Unbelievable. To my mind, that’s the wrong thing to do.

You can’t tell people they shouldn’t accept $1.35 and then issue shares to a strategic player at $1.15. I think the Takeovers Panel is going to have another look at that.

Futuris Corporation. Today (September 1) Futuris (FCL) said it had sold its stake in Amcom Telecommunications for about $48.5 million, and former chief executive Leo Wozniczka would step down from the Amcom board. Futuris has been one of the market’s great break-up candidates for a while. It wasn’t until it sacked Wozniczka that it could start happening properly.

Obviously, Futuris now needs to sell its stake in Australian Agricultural Co (AAC). But if it can’t sell it, it might just distribute it out to shareholders as Toll Holdings did with Virgin Blue. That wouldn’t be such a bad thing for AACo.

I think Futuris will be reduced to a nub of the old Elders business; it might be re-named Elders – that would be another turn of the stockmarket wheel back to something that used to exist! But I think Futuris probably has a fair bit more value in it, but it’s not the greatest time to be selling assets. I think Futuris shareholders are likely to see an improvement in their holdings, in their value, just because the company is now committed to selling assets.

Aussie Home Loans/Commonwealth Bank of Australia. Commonwealth Bank has bought a third of Aussie Home Loans. This is very consistent with Westpac having bought RAMS Home Loans Group. There’s a slight difference: RAMS was a mortgage originator, and now it’s just a brand with Westpac funding its mortgages; whereas Aussie used to be a mortgage originator, but a few years ago, owner John Symond cleverly went from origination to really a mortgage broking model, and it remains to be seen whether Aussie is still independent with respect to Commonwealth’s products, as opposed to other products.

The CBA buy shows how the banks are perhaps happy to buy little bits and pieces of companies. The credit crunch is throwing up all these opportunities. Wizard, even though it cut its interest rates last week, is for sale, with GE Money wanting to get rid of it. So things have really changed beyond recognition among the non-banks: Aussie has just had a third of its shares bought, Wizard is for sale, RAMS, as we know, has already basically been sold.

St George/Westpac. Speaking of the ACCC, the regulator has waved through the Westpac/St George merger. Interestingly, last week St George cancelled a US bond issue. The reason it did is because St George is only single-A rated; the other banks in Australia are AA, and the word is that St George was basically told that there was just no demand for single-A paper, as the securitisation market for a single-A rated bank is still closed.

In other words, that tells you that St George doesn’t have any choice but to do the deal with Westpac. If St George shareholders did not have this deal on the table right now, the shares would be substantially lower than their current level.

ConnectEast/Transurban. Toll road operator ConnectEast (CEU) had a somewhat disappointing first month of toll traffic, as opposed to no-toll traffic. The results were 27% below expectations. Transurban (TCL) is still touted as the obvious buyer of ConnectEast, but, having said that, it might just decide to sit back and see what happens. Like a lot of these operators, ConnectEast has a lot of debt, and it has to pay its distributions out of capital, not profits, and that’s big no-no in the current climate. Transurban has said it will only pay distributions out of genuine profits and is a much older operator.

There are a couple of tunnels in Sydney, which have gone technically broke. This idea that toll roads can’t go broke is wrong; they can. It doesn’t mean the road disappears, but it means someone, rather than having to buy the whole corporate entity, could possibly buy the asset. I’m not saying ConnectEast is going to go broke, and I think Transurban is very interested in it, but I think it’ll wait and see what the actual usage of the road is. If you had a year of underperforming traffic numbers it could be difficult.

Just Group/Premier Investment. Premier went through 90% of Just and has announced its intention to go to compulsory acquisition. The bid closes on Wednesday (September 3), and I’d very much doubt it would be extended because now that Premier can compulsorily acquire shares there’s no need to. It’s very important if you haven’t accepted the bid to accept it now. If you get into the compulsory acquisition stage, it can take six to eight weeks to get your money, whereas if you accept, you are guaranteed to be paid within four weeks. The end result is largely the same, but if you want to get your cash early and do something else with it, then you’ve got a couple of days to accept.

Indophil Resources. I had hopes the battle for Indophil Resources would turn into a real bidding war, but Xstrata’s bid at $1.28 a share lapsed on Friday. This leaves an offer from the management buyout group Stanhill at $1.28 cash on the table. With the Stanhill offer, you’ll also get a share in their exploration properties. It’s important to start accepting that bid. It is conditional upon 90% acceptances, although my understanding is they might declare it unconditional at 50%. And Lion Selection Group (LST), which owns 25% of Indophil, said it will accept a bid, so it’s almost certain to go ahead.

Macmahon Holdings/Ausdrill. Macmahon Holdings and Ausdrill are in an interesting situation, because Macmahon has lifted its bid to 1.65 Macmahon shares for each Ausdrill share from 1.45. The Ausdrill board owns 25% of the company, which includes the 15% holding of chief executive Ron Sayers. The board has said it won’t accept the Macmahon bid, and Macmahon has declared its bid final, so it can’t lift its bid again to try and meet the board’s expectations. However, the Macmahon bid is only conditional upon 50% acceptances. So, given that the board only owns 25%, it is not impossible that Macmahon could get over the line. I understand the company in total is 55% institutionally owned, so I think Macmahon’s advisers are going to be getting in contact with all those institutions and trying to see if they will accept a bid. But generally speaking, it is hard to get to 50% where the board opposes you. Having said that, as we saw with Just Group, the Just board opposed the bid, but Premier got it though anyway, and I think in these uncertain times, people are more likely to accept bids than perhaps what they once were.

There’s a big spread. The Ausdrill shares are trading at more than 10% discount to the value of the bid, so conceivably there’s some money to be made there. Having said that, if Macmahon walks away, then the Ausdrill share price could fall from around the $2.40–2.45 mark back to around $2, where it was before the bidding process even started.

My feeling is that Macmahon just might get there one way or another. I think that some of it will depend on overall stockmarket weakness, but I think institutions these days are less likely to listen to boards, and we saw that in Premier and Just, and that’s not a bad thing, because boards often have their own interests at heart, and not necessarily the interests of their shareholders.

Oaks Hotel & Resorts/Archer Capital. Oaks Hotel & Resorts (OAK) announced on Friday it had received a bid from private equity firm Archer Capital. Of course Archer was the group that bid for Funtastic, and then famously, as I suggested might happen, pulled out of the bid. Now, what is interesting about this latest bid is that Oaks has said it’s received a bid, but it hasn’t said what price it’s at. It’s likely that Archer Capital did not want to commit itself to a price, after offering 80¢ a share for Funtastic and then seeing Funtastic’s share price well below the suggested price. I think with Oaks Hotel & Resorts, Archer will have a close look at it and then tell us what the price might be later on. So I wouldn’t be buying shares in Oaks on the basis of the announcement, given that Archer has a habit of walking away, and in this case we don’t even know what the bid price is.

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

nTakeover Action August 25-29, 2008
Date	Target	ASX	Bidder	(%)		Notes
21/08/08	Abra Mining	AII	Hunan Nonferrous Metals	72.87		Started with 17.8%. Seeks 70% of shares not owned. Ext to September 19.
16/06/08	Anzon Australia	AZA	Roc Oil	0.00		Concurrent with and dependent on Anzon Energy UK scheme offer.
29/08/08	Ausdrill	ASL	Macmahon Holdings	8.18		Extended to September 16.
28/08/08	Bellamel Mining	BMM	Norton Gold Fields	60.98
26/08/08	GoldLink IncomePlus	GLI	Emerald Capital	22.33		Seeks 45%.
28/08/08	Indophil Resources	IRN	Xstrata	3.92		Closing August 29.
27/08/08	Indophil Resources	IRN	Stanhill Resources	9.17
28/08/08	Just Group	JST	Premier Investments	91.80		Extended to September 3.
22/08/08	Midwest Corporation	MIS	Sinosteel	59.53		Extended to August 25.
28/08/08	Mineral Securities	MXX	CopperCo	90.55
11/07/08	Olympia Resources	OLY	Territory Resources	73.53
28/08/08	Origin Energy	ORG	BG Group	0.13
27/08/08	Ridley Corp	RIC	GrainCorp	19.31		Offer lapses.
03/07/08	Rio Tinto	RIO	BHP Billiton	0.00		Early termination of Hart-Scott-Rodino anti-trust waiting period.
28/08/08	Roma Petroleum	RPM	Queensland Gas	79.64		Incl 19.2% pre-bid acceptance. Ext to September 11.
05/08/08	Roma Petroleum	RPM	Bow Petroleum	7.84
20/08/08	Sunshine Gas	SHG	Queensland Gas	15.00		Pre-bid agreement.
26/06/08	Tower	TWR	Guinness Peat Group	35.00		Started with 19.7%, seeking further 15.3% to reach 35%. Received 36.37% acceptances.
nScheme of Arrangement
24/07/08	Australasian Resources	ARH	Resource Development International	66.37		Resource Devel associated with Clive Palmer who holds 66.37%.
05/05/08	Bravura Solutions	BVA	Ironbridge Capital	0.00		No vote date set.
22/08/08	Espreon	EON	Vectis Group	19.80		Vote mid-November.
07/08/08	Independent Practitioner Network	IPN	Sonic Healthcare	71.50		Vote September 11.
26/08/08	Macquarie Capital Alliance Group	MCQ	Macquarie Advanced Investment Co	0.00		Suspended - on court approval of scheme.
19/08/08	Sapex	SXP	Linc Energy	19.42		Vote September 26.
13/08/08	St George Bank	SGB	Westpac Banking Corp	0.00		Vote November 6. ACCC clearance.
nBackdoor Listing
23/06/08	Mark Sensing	MPI	TMA Group	82.00		No vote date set. TMA would have 82% on completion.
nForeshadowed Offers
04/08/08	Asciano	AIO	TPG Capital consortium	0.00
28/08/08	Berklee	BER	Manumatic	0.00		Heads of agreement on $10.9m sale of business.
28/07/08	Felix Resources	FLX	Several expressions of interest	0.00
15/08/08	JB Hi-Fi	JBH	Woolworths	0.00		Unconfirmed media reports that takeover talks collapsed.
29/07/08	Mortgage Choice	MOC	Count Financial	15.20		Acquires "strategic stake".
01/04/08	Mount Gibson Iron	MGX	Shougang Concord	0.49		Takeovers Panel reverses 19.73% acquisition.
28/08/08	Oaks Hotels & Resorts	OAK	Archer Capital	0.00		Non-binding indicative proposal.
19/06/08	Pelorus Property	PPI	Pelorus unlisted funds	0.00		Group merger planned.
16/06/08	Staging Connections	STG	Several parties	0.00		Non-binding proposals. Due diligence proceeding.
22/08/08	Warehouse Group	WHS	Woolworths	0.00		Seeks to appeal court refusal of takeover clearance.
31/07/08	Warehouse Group	WHS	Foodstuffs Co-operatives	0.00		NZ Appeal Court sets aside High Court clearance.

Source: NewsBites