China hovers over resources sector

Midwest. This is one of the most interesting takeover situations in the market. There was a scrip bid on the table by Murchison Metals that valued Midwest at between $3.60 and $4.00 a share. Lo and behold, late on Friday night it emerged that the Chinese company Sino Steel is in talks with Midwest with an offer of $5.60 share, subject to due diligence. This deal just shows how worried the Chinese steel makers are getting about the iron ore market tightening up. Would Murchison top that bid? Difficult, because they’d have to increase their existing bid by more than 50% and they’re only bidding scrip anyway and when companies bid scrip, and they keep adding more scrip, their own share price tends to go down.

Resource Pacific. Xstrata re-entered the Australian M&A game with a $2.85 a share bid for Resource Pacific last week, and it looks like the offer was just too big for New Hope. New Hope had a scrip-based bid for Resource Pacific on the table and in these circumstances it’s not easy to just massively increase your scrip bid ratio because again, that just has a negative affect on your own share price. Now the Resource Pacific share price has softened a bit but it's still well above Xstrata’s bid price, which implies that it’s now up to the board of Resource Pacific to persuade Xstrata to pay more. Xstrata has walked away from these kinds of tactics in the past so it’s going to be very interesting just to see where this one ends up.

Rio Tinto. There was talk of a Chinese consortium making a counter-bid for Rio Tinto. Now that would certainly test the Foreign Investment Review Board. I don’t expect that they would have a problem with Midwest, but Rio Tinto would be a real test. As we know, Prime Minister Kevin Rudd is quite favourably disposed to Chinese investment in Australia and of course he does speak Mandarin. But what this and the Midwest bid do is to strengthen Rio Tinto’s case for an increased bid from BHP, which has offered 3 of its shares for every Rio share. London's Daily Telegraph has run a story suggesting the private equity group Blackstone will join forces with a Chinese consortium to make a bid for Rio.

Xstrata. Over the weekend London newspapers were reporting rumours of a £48 a share takeover of Xstrata led by Brazilian mining giant CVRD now known as Vale. Xstrata rose 5.5% to £35.73 on the rumours.

Now in addition to that Xstrata also has a $23 a share bid on the table with Jubilee. Now Xstrata has acquired a 27% stake in the company and has extended the bid to January 31. In Australia things obviously tend to get a bit quiet over Christmas and I expect that a lot of people involved in these deals won’t be talking holidays anytime soon.

ConsMin. I’ve said a couple of times in the past that I thought there would be one more bid and it's arrived. Now the previous high bid was $4.70 from the Ukrainian company Palmary. Prior to that Pallinghurst had a bid of $4.50 on the table. What’s happened is that those two companies have done a deal; by increasing its bid from $4.70 to $5, Palmary has got Pallinghurst to accept its offer. Interestingly, the Herald Sun published a chartist column over the weekend which said that ConsMin might go to $6.50 now, which just proves how stupid charting is. The company has been sold at $5 a share and will stop trading in about a month. Chartists just focus on the graphs and don’t look at the fundamentals behind a company. Like the late stockbroker Rene Rivkin once said: “I’ve never met a wealthy chartist.”

Equinox. CORRECTION. A report carried overnight Monday, December 10, implied Equinox Minerals – a diversified copper company – could be involved in the rationalisation of the coal sector. Equinox has no coal interests. The error was made in production.

Nufarm. ChemChina and Blackstone were doing due diligence on Nufarm and have announced their intention to walk away. It’s hard to get a line on what’s happened here but it could be a couple of things. First, talks could have broken down quite genuinely. Second, it might be in Nufarm’s interest to reach a stalemate because of its exclusively arrangement. This way it can now enter talks with other parties and try and generate some interest. It’s fallen quite hard, more than 10%, and personally I reckon that’s a bit of an over-reaction. Doug Rathbone is the chief executive of Nufarm and is believed to have been shopping around his 18% stake for quite some time.

Primary. Primary’s offer for Symbion closes today if Primary's stake doesn’t get to 50%. Primary said today that they own 30% of Symbion, but my feeling is that it won’t get over the line and that they will have to extend their bid. At the same time you’ve got Healthscope buying up Symbion on market. It’s got about 10%. So between the two of them they now own around 40%. If anyone is looking at selling into this bid I would recommend hanging on to just a few. In the end one of these companies is going to have buy out the minority shareholders with a mop-up bid. Now in the case of Auspine, we saw Gunns come back and offer a significant premium to the original offer, which could just happen here.

Mirvac. Mirvac and Lend Lease have been forced to confess that they have been having talks. What’s interesting about this is who is taking over who largely depends on which brokers you talk to. My feeling is that it will be Lend Lease taking over Mirvac. And that’s certainly what the market thinks as we saw Mirvac rise and Lend Lease weaken last week. The feeling is that Greg Paramour, who runs Mirvac, only has a few years left in the role and negotiating a takeover would be a good exit for him. Now we’ve seen a lot of consolidation in the listed property sector and it would make a lot of sense for these companies to be put together. They’ve both got impressive development opportunities and existing property portfolios. The property trust industry is very much about size and shortages, so it’s often better to buy other companies than it is to go out and develop things from scratch. But I stress, we don’t have a bid on the table just yet.

Skycity. Originally Skycity said that there were a number of parties who had made approaches but they didn’t reveal who those parties were. I believe that the US casino operator Harrah’s was operating in conjunction with the private equity group TPG. It was rumoured that the other group was PBL or as it’s known now, Crown Gaming. Then last week Skycity announced that there was only one group still interested and that they had to extend the due diligence period, which I think is shorthand for “the other party wants to do a deal but it needs to raise the finance”. This is an unusual situation. Skycity doesn’t have a managing director at the moment, and while I think a bid will emerge I don’t think that it will be much more than the current share price.

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

nTakeover Action December 3-7, 2007
Date	Target	ASX	Bidder	(%)		Notes
16/11/07	Auckland International Airport	AIA	CPP Investment Board (Canada Pension Plan)	0.00		CPP proposes 39.53% partial offer.
3/09/07	Auspine	ANE	Gunns	60.80		Unconditional.
12/07/07	Avantogen	ACU	Chopin Opus One LP	84.98		Diluted from 87.62%.
19/11/07	Beyond International	BYI	Mariner Financial	22.25
4/12/07	BSA	BSA	Hills Industries	50.10		Hills Antenna & TV Division merged with BSA
26/11/07	Consolidated Minerals	CSM	Pallinghurst Resources/AMCI	5.46		$3.30 recommended cash offer. Extended to December 27.
6/12/07	Consolidated Minerals	CSM	Palmary Enterprises	29.64		Closing December 7.
28/11/07	Golden China Resources Corp	GCX	Sino Gold Mining	16.90		Extended to December 11.
5/12/07	Golden West Resources	GWR	Fairstar Resources	22.69		Extended to January 13. Offer not withdrawn, as incorrectly advised last week.
4/12/07	GoldLink Growth Plus	GLC	Tidewater Investments	12.78
3/12/07	Gujarat NRE Resources	GUJ	India NRE Minerals	96.91		Compulsory acquisition notice withdrawn
30/11/07	Infochoice	ICH	Once	19.90
6/12/07	Jubilee Mines	JBM	Xstrata	22.16		FIRB approval received. Extended to January 31.
6/12/07	Kimberley Diamond Co	KIM	Gem Diamonds	94.14		Closing November 26.
7/12/07	Lighting Corporation	LCL	Gerard Lighting	19.79		Closing December 14.
6/12/07	Mackay Permanent Building Society	MPB	Wide Bay Australia	66.18		Revised offer.
4/12/07	Midwest Corporation	MIS	Murchison Metals	2.80		Extended to December 20.
12/10/07	New Privateer Holdings	NPH	Magellan Financial	36.03
6/12/07	PCH Group	PCG	Cape Plc	76.62		Extended to November 29.
28/02/07	Queensland Gas	QGC	TCW/Societe Generale	0.00
7/11/07	Resource Pacific	RSP	New Hope Corporation	0.00		Revised offer.
5/12/07	Resource Pacific	RSP	Xstrata	0.00
29/11/07	Sydney Attractions Group	SAQ	Village Roadshow	30.82		Extended to December 14.
6/12/07	Symbion Health	SYB	Primary Health Care	20.00
5/12/07	travel.com.au	TVL	Wotif	59.74
3/12/07	Unwired Group	UNW	Seven Network	90.20
nScheme of Arrangement
29/10/07	Anzon Australia	AZA	Arc Energy	53.10		Anzon Energy , with 53.1%, will vote in favour. Vote January 2008.
8/11/07	Beyond International	BYI	Navis Media	<5.00		Ceases to hold in excess of 5%.
4/12/07	Bolnisi Gold NL	BSG	Coeur D'Alene Mines Corp	19.99		Shareholders approve scheme.
9/11/07	Coates Hire	COA	National Hire Group, Carlyle Group	0.00		Vote December 11.
30/11/07	Colonial First State Private Capital	CFI	SunSuper Superannuation Fund	18.75		Shareholders approve scheme.
4/12/07	Home Building Society	HME	Bank of Queensland	0.00		Court approves scheme.
7/12/07	Hostworks	HWG	Macquarie Communications	0.00		Vote mid-February.
30/11/07	Oriel Communications	OCO	FCP Brencorp	0.00		Shareholders approve scheme.
8/10/07	Panbio	PBO	Inverness Medical Innovations	0.00		Vote December 17.
29/10/07	Perseverance Corp	PSV	Northgate Minerals Corp	0.00		Vote mid-January.
27/11/07	Symbion Health	SYB	Healthscope	11.10		Terminated.
26/11/07	Viking Industries	VKI	Provik shareholder consortium	28.38		Vote January 31.
10/10/07	Visiomed Group	VSG	Clinical Cell Culture	0.00
nForeshadowed Offers
26/09/07	Atlas Group	AHS	Unnamed parties	0.00		Balron offer rejected. Other discussions continue.
5/11/07	Blue Energy	BUL	Sydney Gas	0.00		Discussions.
12/06/07	Great Southern	GTP	Unnamed party	0.00		Expression of interest.
2/07/07	Great Southern	GTP	Unnamed parties	0.00		Interest from other partes - following previous expression of interest.
27/06/07	Health Corporation	HEA	Unnamed party	0.00		Non-binding terms sheet.
7/12/07	Midwest Corporation	MIS	Sinosteel	0.00		Non-binding proposal.
5/12/07	Mirvac Group	MRG	Lend Lease Corp	0.00		Talks confirmed.
5/11/07	Nufarm	NUF	China National Chemical Corp	0.00		Non-binding proposal.
9/11/07	Rio Tinto	RIO	BHP Billiton	0.00		Offer rejected.
5/12/07	SkyCity Entertainment	SKC	Unnamed party	0.00		One party still interested.
24/09/07	Style	SYP	Unnamed party	0.00		Confidential approach from international private equity.
29/11/07	Warehouse Group	WHS	Woolworths	0.00		NZ High Court clears way for offer
29/06/07	Warehouse Group	WHS	Foodstuffs Co-operatives	0.00		NZ High Court clears way for offer
nBackdoor Listing
30/11/07	Mark Sensing	MPI	Sonofax Holding	65.00		Sale agreement received.