Coates back in the limelight

Coates Hire. Rumours have been circulating for a while that a couple of big private equity groups want to put together a bid for Coates. It was reported in today’s business media that the private equity firm Carlyle Group and the Kerry Stokes-owned National Hire were behind a $1.5 billion bid. Such rumours have been around for a while: they usually involve a private equity outfit and occasionally Leighton. Apparently the French equipment hire outfit Loxam was doing due diligence but didn’t make a bid in time for the Saturday deadline. The stock was trading for about $5.40 on Friday and I would expect that the board is happy to entertain bids above $6.

What’s interesting about this is that if there is a confirmed bid from a private equity group it proves that the private equity market is not dead. The cheap and easy debt that was available has probably dried up but solid private equity groups can still borrow money, especially if they’re buying solid companies like Coates. We’ll probably know in the next couple of days whether Coates does actually have a bid on the table. Again, it’s the sort of company that could be bid for. There has probably been interest but it has to be at the level that the board feels it could recommend, and I understand that’s north of $6 a share.

Symbion. Primary Healthcare has now accumulated 20% of Symbion on market, and Symbion’s shareholders are due to vote on Healthscope’s $4.30 a share takeover in a couple of weeks, on September 11. Primary Healthcare has a good shot at blocking the bid with its 20% stake, but it’s definitely not a foregone conclusion. My gut feeling on this is not that Primary wants to spoil the bid because it has borrowed quite a lot of money to buy these shares; but rather Primary’s Ed Batemen wants to force Symbion and Healthscope to the negotiation table so he can buy some of Symbion’s assets. Having said that, he might just be looking for cheap entry into the new merged entity.

This situation is still a long way from being resolved. Healthscope is not going to allow itself to be forced to negotiate a deal that it doesn’t like and has been quite open about formulating 'Plan B’. One possibility here is that Symbion could sell its assets to Healthscope, which would thwart Primary’s plans and only require 50% shareholder approval, which is a strategy that Flight Centre used after their initial MBO was rejected.

The fact is that Symbion is probably the last healthcare pathology company that can be taken over. Beyond this deal, I don’t think the ACCC will allow any more mergers, so the fact that it’s receiving so much attention from two other players being Healthscope and Primary is not surprising. Its also possible that Primary is about to launch its own bid. It just may have a partner waiting in the wings to bankroll an offer. If, and that’s a big if, a bid did eventuate from Primary then its going to need to be cash and its going to need to be above $4.30 to get the approval of the Symbion board.

Coles. The independent expert that is reporting on the Wesfarmers bid will hand down its report in another week. It’s going to put the Coles board into an interesting situation because clearly Wesfarmers’ shares are not at the level they were when the bid was announced, but I really can’t see that the Coles board has much alternative than to recommend the bid. There isn’t another bidder out there and its own management of the company hasn’t exactly been good either, so I think it’s actually more likely now that the Wesfarmers bid will proceed.

The independent expert will be under some pressure to come up with a range of valuations that allow the board to recommend the bid in its current form. Independent experts are always under pressure and most of them will give you the result you want. They’re paid by the target board to come up with a report, so the target board is effectively recommending the report. The question is: Do they use Wesfarmers price as it is right now, or do they use an average of the Wesfarmers price over the past couple of months? That will make a big difference to the valuation. Do they have a low end and a high end value for Coles? My feeling is that they’ll come up with an average measure of the Wesfarmers price that allows the value range to slot neatly inside it which the board can comfortably support.

ConsMins. Results were out last week and ConsMins announced a $31 million net profit, so with a market cap of $800 million, it’s on a multiple of about 26 times, it’s certainly not cheap. We potentially have as many as four bidders for this company, which is unusual. The driver behind all this the manganese supply. There are really only about four or five suppliers of this material so it’s the offtake agreements, the guaranteed supply of manganese, that is generating all this interest.

To recap, there is the Pallinghurst bid on the table, which is for $3.30 a share cash. Then there is the Territory Resources cash and scrip bid, which, depending on Territory’s share price, is worth about $3–3.40. Then there is the Ukrainian outfit Privat, which has built a 13% stake in the company but is yet to make a bid. Finally, there is a Norwegian group called Tinfos, which is allegedly doing due diligence on the company. Because of all this interest, ConsMins was trading as high as $3.75 on Friday. With as many as four bidders for ConsMins, who knows what might happen here. We know that Territory have approached Privat. We could assume that Privat have spoken with Pallinghurst. Has Tinfos entered into discussions with anyone yet?

Brambles. The market is getting frequent updates about Asciano’s growing stake in Brambles and the interesting thing is that it’s not coming from Asciano but from Brambles. At this stage the stake is below 5%, so Asciano is not obliged to disclose its holding. Most of the time companies try and get as big a stake as possible and then launch a bid because publicity just serves to bump up the share price and make the company more expensive. I suspect Asciano probably does want to launch a bid for Brambles, but it is possible that this is just a strategic stake. Brambles, on the other hand, has been underperforming for some time so regardless of Asciano’s intentions, the board at Brambles would be quite pleased with events as they unfold. Toll Holdings also has a small stake. In my experience, these sorts of strategic shareholdings usually lead to bids – but not always and not necessarily straight away. Sometimes it can take a bit of time.

Auspine. The market turbulence we had two weeks ago certainly worked to Gunns’ advantage. Auspine’s shares have fallen to about $6 and Gunns’ cash bid was $6.15, so it was a pretty obvious thing to do. At this point, Gunns extended its offer and made it unconditional and the Auspine board turned around and recommended the offer. Adrian de Bruin, who is the major shareholder in Auspine with around 30%, has said he won’t accept the bid, so Gunns won’t get full ownership. My feeling with this one is that in the short term, you’d probably accept the Gunns’ bid.

In the longer term, I just think Gunns is eventually going to have to buy out Adrian de Bruin and the stock will stay listed. Gunns could acquire the remaining stock and put a bigger offer to de Bruin at some time in the future. What I will be watching is the Auspine shareprice in a week or so, after the offer closes. If it holds firm well then it’s fine, but if it slips a bit it’s probably a good buy because eventually Gunns will need to come back. There was a similar situation with AMP and GIO several years ago that saw AMP return to pick up the remainder of GIO at around half the initial offer price because the GIO business suffered in the interim.

Tom Elliott is managing director of MM&E Capital. He may hold stakes in any of the shares mentioned.

nTakeover Action August 20-24, 2007
Date	Target	ASX	Bidder	(%)	Notes
20/08/07	Auspine	ANE	Gunns	>50.00	Unconditional
20/08/07	Australian Hotel Fund	AHO	Barana Group	44.31	Plus acceptance indication from 19.9% shareholder
12/07/07	Avantogen	ACU	Chopin Opus One	84.98	Diluted from 87.62%
20/07/07	Becker Group	BKR	Prime Television	74.95	Unconditional. Extended to July 26
17/07/07	Consolidated Minerals	CSM	Territory Resources	0.00	Offer confirmed
20/08/07	Consolidated Minerals	CSM	Pallinghurst Resources/AMCI	5.20	$3.30 recommended cash offer
24/08/07	Cumnock Coal	CMK	Xstrata Coal	93.98	Suspended
13/08/07	Golden China Resources Corp	GCX	Sino Gold Mining	5.30	Lock -up agreement
26/07/07	Mackay Permanent Building Society	MPB	Wide Bay Australia	15.65
21/08/07	MTM Entertainment Trust	MME	Ivany Entertainment	92.36	Compulsory acquisition
22/08/07	Multiplex Group	MXG	Brookfield Group	52.74
6/08/07	Nova Energy	NEL	Toro Energy	66.60	Pre-bid indications of acceptance
1/08/07	OmegaCorp	OMC	Denison Mines	96.33	FIRB approval
28/02/07	Queensland Gas	QGC	TCW/Societe Generale	0.00
5/06/07	Rocklands Richfields	RCI	Bowen Energy	0.00
21/06/07	Vietnam Industrial Investments	VII	Prudential Vietnam Securities Investment Fund Management Co and VII director Henry Lam Van Hung	0.00
10/08/07	Vietnam Industrial Investments	VII	Corbyns International	19.30	Off-market offer
nScheme of Arrangement
9/08/07	Adelaide Bank	ADB	Bendigo Bank		Vote November
19/08/07	Alinta	AAN	Babcock & Brown; Singapore Power	0.00	Court approval granted
4/07/07	Bolnisi Gold	BSG	Coeur D'Alene Mines	19.99	No vote date set. Due diligence completed
22/08/07	Coles Group	CGJ	Wesfarmers	12.10	Vote October 25. ACCC not to oppose scheme
16/08/07	Colonial First State Private Capital	CFI	SunSuper Superannuation Fund	18.75	Pre-bid support. Vote November
20/08/07	Evogenix	EGX	Peptech	19.99	Suspended
21/08/07	Hanson	HAN	HeidelbergCement		UK High Court approves scheme
18/07/07	HPAL	HPX	Salmat	0.00
22/08/07	Investa Properties	IPG	Morgan Stanley Real Estate	0.00	Shareholders approve scheme
1/08/07	IWL	IWL	Commonwealth Bank of Australia	13.96	Vote October
3/08/07	Lipa Pharmaceuticals	LIP	CIC Life Sciences	0.00	Vote October
20/08/07	Mackay Permanent Building Society	MPB	Bank of Queensland	0.00	Scheme booklet due October
6/08/07	Oriel Communications	OCO	FCP Brencorp	0.00	75% acquisition proposed. No vote date set. Implementation agreement signed
23/08/07	Orion Telecommunications	OTL	M2 Telecommunications Group	0.00	Vote September 24
25/07/07	Southern Cross Broadcasting (Aust)	SBC	Macquarie Media Group	16.40	ACCC to assess acquisition
15/08/07	Symbion Health	SYB	Healthscope	11.10	Vote mid-September. ACCC not to oppose
nForeshadowed Offers
16/08/07	Atlas Group	AHS	Former director Peter Smaller and associates	0.00	Discussions confirmed
16/08/07	Ausdrill	ASL	Expression of interest	0.00	$2b party withdraws. Discussions with another party
20/08/07	Consolidated Minerals	CSM	Unnamed party	0.00	Confirms third takeover suitor carrying out due diligence
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
9/08/07	Panbio	PBO	Medical Innovations (Inverness)	0.00	34c bid not considered adequate
9/08/07	Panbio	PBO	Unnamed parties	0.00	Other parties invited to carry out due diligence, along with Medical Innovations
25/07/07	Viking Industries	VKI	Provik shareholder consortium		Conditional offer at $1.09. Offer due in August
29/06/07	Warehouse Group	WHS	Woolworths	0.00	NZ Commerce Commission declines approval of an offer. Woolworths appeals to NZ High Court
29/06/07	Warehouse Group	WHS	Foodstuffs Co-operatives	0.00	NZ Commerce Commission declines approval of an offer. Foodstuffs appeals to NZ High Court
15/08/07	Webster	WBA	Futuris Corporation	26.92	Cash exit offer for any shareholder
nBackdoor Listing
13/06/07	Mark Sensing	MPI	Sonofax Holding	63.00	Due diligence continues

Source: NewsBites