Could AXA be in a bank's sights?

PORTFOLIO POINT: There is speculation that one of the banks could bid for AXA’s Australasian assets.

AXA Asia Pacific (APH). The printing presses, investment banking and research departments of all the big financial groups are working overtime on various outcomes to do with AMP and AXA. What has become clear over the past week is that the takeover bid for AXA Asia Pacific was driven by its French-based parent AXA SA, which already owns half of the company. AXA SA doesn’t want the Australasian assets – it wants the business in Asia, basically China and Hong Kong – hence it’s brought in AMP as a partner on the deal.

There is some speculation that one of the banks could bid for AMP – unlikely but possible – with the most speculation involving ANZ (probably the weakest in the wealth management area) and to a lesser extent NAB. However, I think there’s an alternative that people are overlooking a little bit: that ANZ, NAB, or one of the other banks could actually bid for the Australasian assets of AXA. They could approach AXA SA and pitch a better deal than the one they have with AMP, paying AXA SA more for the same assets. It is always better to focus on the target in these situations so keep your eye on AXA.

At the moment AXA’s stock is trading around 2–2.5% above the value of the AMP/AXA SA bid, so if investors think there’s a chance that the bid can be lifted, this may be a good opportunity. AXA chairman Rick Allert has already said the initial bid was not in the ball park, and there has been good argument to say that they will lift the bid to a point, maybe as much as 8–10%. Hedge funds are starting to pile on to the AXA register as well; they will be pushing for a resolution. The most likely outcome is an increased bid as a combination of bidding by AMP and AXA SA, a bit more cash and maybe a better scrip ratio.

Resourcehouse. Clive Palmer has a big initial public offering (IPO) in Hong Kong coming up, aptly titled Resourcehouse: basically a big grab-bag of assets. The company will be like a conglomerate, but in the resources business – coal, gas and some metals. The fact that this is getting up at all should be seen as a huge sign of confidence. In fact, if this lists well you’ll almost certainly see Australian resources’ share prices go up. It is interesting that Palmer is not doing it in Australia. He is a smart guy and knows his customers are largely Chinese; hence he’ll probably get the best price because they have the money.

Reports over the weekend have said that the IPO, which is meant to happen this week, may be delayed because these investors don’t have a lot of experience with commodity stocks. The two sophisticated resource markets are Australia and Canada; we know more about it than just about anyone else. If you want to look at where speculative mining companies can raise capital, it’s here and in Canada, because that’s where a lot of the projects are located. However, Palmer obviously thinks he can get a better price in Hong Kong.

On the downside, what’s happening here is that Palmer is effectively cashing in. He’s selling, not buying, here and you have got to be a bit careful about that. Despite the float being a huge boost of confidence for the sector, if Palmer just takes a whole lot of money off the table well then that’s actually slightly negative. He’s now suddenly got an opportunity to make a whole pile of money, which he couldn’t have done nine months ago. A lot of these floats are emerging simply because they can get them away in the current economic climate.

Tabcorp Holdings (TAH). Tabcorp is definitely on the acquisition trail because, as with rival Tatts Group (TTS), they need to replace their Victorian pokies duopoly, which is being taken away from them. Wesfarmers (WES) has been reported to be looking at exiting some of its hotel interests, but it is a bit unclear at the moment what they are considering. It could well be a straight purchase of a joint venture, but I think if Wesfarmers was doing this to focus on retailing it might be because they don’t want the social stigma associated with being a poker machine operator. For a company that is predominantly a supermarket owner, I believe it’s a bit of a sideshow.

Tabcorp has a long history of operating poker machines and they know what to do; they’ve got the systems and the people in place. If the assets are sold, Tabcorp would definitely rather buy them outright. The price tag that has been put on the pokies assets Wesfarmers would sell is about $200 million. It’s also been reported that Tabcorp may be interested in National Leisure & Gaming (NLG), which I think it is a bit far-fetched. NLG is in a bit of strife and even if Tabcorp really wanted the assets it could afford to bide its time.

BHP Billiton (BHP)/Rio Tinto (RIO). This Friday marks the one-year anniversary of BHP’s bid for Rio Tinto and speculation that BHP will take another stab at Rio will be rife. The two miners are negotiating a joint venture and as I’ve said many times, if it gets up there will be no problems, BHP gets most of what it wants which is control of the Pilbara. If Rio decides to walk away from the joint venture it will probably survive without it – the $4 billion it forgoes could be raised some other way. My view is that if Rio walks away BHP would bid for it again.

BHP’s problem is that it has gone through the financial crisis and not bought anything. So it is in great financial shape, it has a ton of financing lined up, and yet it didn’t snap up anything when it should have. It’s now obvious we all should have bought shares eight months ago, but BHP – at a time when it was strong and others were weak – did nothing and that is going to play on their minds for some time.

Breville Group (BRG). The bid for Breville from GUD continues to get interesting. GUD already had 20% acceptances for its bid, and it has now received another 20%. So that is definitely 40% and there’s probably another 7–8% which have said they will accept, but haven’t just yet. So that’s 40% in the bag, another 8% promised and they only need 50.1% to get over the line.

The twist here is that Breville’s directors have rejected the offer, but just because they say they don’t think it is a good idea doesn’t stop shareholders saying they don’t care and selling out anyway. Of course, the other major shareholder is Solomon Lew’s Premier Investments. I’ve said in the past that unless they get an increased offer, Premier will probably just hang on to its share.

Photon Group (PGA). Lachlan Murdoch’s private investment vehicle, Illyria, is said to be possibly having a crack at marketing and communications company Photon Group. I don’t know if Photon’s chairman Tim Hughes is a seller, but it clearly needs money and Illyria has a mixed record of buying into things. Murdoch has already bought a few things in that space which haven’t gone that well. Advertising and marketing has been through a tough part of the cycle, but having said that maybe now’s the time to buy these sorts of things. To be honest, looking back this week on the One.Tel debacle, I’m not entirely sure I’d be following Lachlan Murdoch with anything, even though it was eight years ago.

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

nTakeover action November 16-20, 2009
Date	Target	ASX	Bidder	(%)	Notes
08/10/09	Adultshop.com	ASC	SexyLand	0.00
07/11/09	AXA Asia Pacific Holdings	AXA	AMP and AXA SA	53.93	AXA rejects. AMP to sell to Asia operation to AXA SA.
09/11/09	Breville Group	BRG	GUD Holdings	34.24
13/11/09	Centaurus Resources	CUR	Glengarry Resources	18.98
11/09/09	Corvette Resources	COV	Cape Lambert iron Ore	46.52
19/11/09	Danks Holdings	DKS	Carboxy	97.82	Carboxy a JV of Woolworths (66%) and Lowe's (34%)
13/11/09	Dioro Exploration	DIO	Ramelius Resources	31.01
19/10/09	Energy Developments	ENE	Pacific Equity	0.00
02/11/09	Energy Metals	EME	China Uranium Development Company	9.43	Bid for 70%.
21/09/09	Hamilton James & Bruce Group	HJB	Charterhouse	73.72
29/10/09	KLM Group	KLM	Programmed Maintenance Services	19.99
09/11/09	NewSat	NWT	EWC Payments	0.00	EWC recommend rejection.
19/11/09	PearlStreet	PST	Campbell Brothers	25.41
06/10/09	Polaris Metals	POL	Lion Diversified	25.50
06/11/09	Polaris Metals	POL	Mineral Resources	31.72	Recommended.
06/11/09	Rey Resources	REY	Crosby Capital	0.00	Directors reject.
30/10/09	Rey Resources	REY	Gujarat NRE Minerals	16.85	Rey rejects offer. Ext to Nov 27.
13/11/09	RMA Energy	RMT	CREC Resources	51.39	Seeks 80% of outstanding holdings.
01/09/09	Sino Strategic International	SSI	CY Foundation Group	0.00	Common chairman and shareholder
10/09/09	Tandou	TAN	Guinness Peat	19.90	Seeks 50% of outstanding holdings.
09/10/09	Vesture	VES	Prudential Investment Company	0.00
11/11/09	Zedex Minerals	ZDX	Olympus Pacific Minerals	0.00	Olympus to list on ASX.
Scheme of Arrangement
17/08/09	Brandrill	BDL	Ausdrill	0.00	Vote November
17/11/09	Corvette Resources	COV	Tianshan Goldfields	0.00
06/10/09	Cytopia	CYT	YM Biosciences	0.00	Vote January
06/08/09	Eircom Holdings	ERC	STT Communications	0.00	Vote December
13/08/09	Felix Resources	FLX	Yanzhou Coal Mining Company	0.00	Vote December
05/11/09	Gas2Grid	GGX	Orion Petroleum	0.00	Vote January
17/11/09	GRD	GRD	AMEC	0.00	Approved.
28/09/09	Lend Lease PrimeLife	LLP	Lend Lease	43.00	Vote December
17/11/09	Lion Selection	LST	Catalpa Resources	0.00	Approved.
12/10/09	Mirvac Real Estate Investment	MRZ	Mirvac Group	24.60
28/09/09	Nufarm	NUF	Sinochem Corporation	0.00
11/11/09	PIPE Networks	PWK	SP Telemedia	19.90	Vote March.
26/08/09	Sino Gold Mining	SGX	Eldorado Gold	0.00	Vote November
27/10/09	Transurban Group	TCL	Canada Pension Plan Investment Board and Ontario Teahcers' Pension Plan	0.00	Board rejects.
16/10/09	United Minerals	UMC	BHP Billiton	0.00
03/09/09	Universal Resources	URL	Vulcan Resources	0.00	Vote December
07/09/09	Warwick Resources	WRK	Atlas Iron	0.00	Vote November
Backdoor Listing
25/09/09	Biosignal	BOS	RGM Entertainment	0.00	RGM shareholders to receive 87.35%
Foreshadowed Offers
19/10/09	Ausmelt	AET	Unnamed party	0.00	60-70c per share. More info Dec.
02/10/09	Polaris Metals	POL	Third party	0.00	Possible competing offer
28/10/09	Rocklands Richfield	RCI	Jindal Steel & Power	0.00	Extends due diligence to Nov 30.
05/11/09	Rocklands Richfield	RCI	Meijin Energy	0.00

Source: NewsBites