DataRoom AM: Bega backdown

Bega backs away from its WCB bid clearing the path for Canadian suitor Saputo, while Dexus Property Group lands CBA’s offices contract.

The company that started the bidding war for Warrnambool Cheese & Butter, Bega Cheese, has decided to drift calmly off into the sunset, leaving Murray Goulburn and Saputo to duke it out to the bitter end. While Bega may no longer be pursuing its bid, it could still have a major say on proceedings, offering the potential to push Saputo toward what has long appeared an elusive majority stake.

Elsewhere, the Commonwealth Bank of Australia backs Dexus Property Group for control of its office landlord, iBuy readies for its first trading day on the ASX, CBA receives a healthy payout for the management rights to CFS Retail Property Group and UGL signs a maintenance deal with Chevron Australia.

Bega Cheese, Saputo, Warrnambool Cheese and Butter, Murray Goulburn, Kirin Holdings

The first bidder appears to have cracked in the bitter battle for Warrnambool Cheese and Butter, with Bega Cheese deciding not to extend its Friday offer deadline.

Given it has increased its stake by less than 1 per cent since taking acceptances, the move isn't a great shock, though it does come a little out of left field. It could, however, pave the way for Canadian group Saputo to become more comfortable in the driver’s seat.

For now, Bega hasn't revealed its plans other than to drop out of the bidding process, but if it gives its stake to Saputo that would be a gamechanger.

Such a move would bring Saputo's stake to around 36 per cent, just 14 per cent off a majority stake. There is still the worry of the combined 28 per cent stakes of Murray Goulburn and Kirin Holdings, but if Saputo gets past 50 per cent those companies may be forced to yield.

Kirin has been tight-lipped about its intentions other than to say it wants to protect its current relationship with WCB. If Saputo manages to coerce Bega to sell and promises to retain the current deal between WCB and Kirin, it may play ball with the Canadian group. That would leave Saputo just shy of 50 per cent and almost certain to claim a majority stake.

It’s still a big if as Kirin and Bega are yet to show any inclination of wanting to deal with Saputo, but it appears the most likely scenario other than a continued stalemate.

It is bad news for Murray Goulburn, however, which has ploughed significant resources into its push to gain regulatory approval from the Australian Competition Tribunal. That would all be for naught if Saputo gets its way on the stakes of Bega and Kirin in coming weeks.

Bega, meanwhile, is set for a tidy profit of over $60 million if it offloads its stake, which could lead it toward a separate acquisition.

"We have got plenty of opportunities in the business, internal and external," Bega boss Barry Irvin told The Australian.

"We are not saying if we didn't get WCB, we would need to do something else… there may be other opportunities we will look at over time."

One suspects that if Bega can’t seal a takeover of its own in the next six months, this time next year we may be talking of it as the target in another dairy bidding war. Investors appear to agree, pushing Bega’s shares 1.6 per cent higher yesterday to a level around 30 per cent above where it was when it first fired in a bid for WCB.

Among other possible deals rumoured in the dairy sector are a possible Parmalat bid for WA-based Harvey Fresh and suspicions Kirin-owned Lion Nathan is mulling a joint venture or sale of its dairy business.

Dexus Property Group, Commonwealth Bank of Australia, GPT Group

Commonwealth Bank of Australia has officially thrown its weight behind the revised Dexus-led bid for control of the Commonwealth Property Office Fund.

The decision to accept the $3 billion Dexus-Canada Pension Plan Investment Board proposal will see it shun a rival offer from GPT Group. However, the move is hardly a surprise given the Dexus bid promised to pay $41 million for CBA’s management rights, while GPT opted not to do the same.

CBA move will only be relevant once Dexus takes its offer unconditional and if the sale of CBA’s 7.8 per cent stake will take Dexus above the 50 per cent threshold.

Given Dexus already holds a 14.9 per cent shareholding, it is almost halfway to majority control. GPT, which has received acceptances of 7 per cent, is considered likely to raise its bid shortly in order to trump the sweetened offer Dexus announced last week.

Commonwealth Bank of Australia, CFS Retail Property Group

In a big day for CBA, the largest member of Australia’s big four banks also cut ties with CFS Retail Property Group.

The bank’s move to offload its management rights came at a cost of $460 million to CFS in the latest management internalisation deal in Australia’s property sector.

The deal has reportedly been backed by major CFS shareholder John Gandel, with CFS now planning a $280 million fully underwritten institutional placement, in combination with debt and a security purchase plan.

A buyout of the rights had been long anticipated, though talks reportedly broke down earlier this month.

The size of the deal was a little below expectations, which had largely centred on a figure of $500 million.

Gina Rinehart, Hancock Prospecting

Gina Rinehart’s $10 billion Roy Hill iron ore project is facing a crucial couple of days as final investment decisions come in from several import-export banks around the world.

According to the Korea IT Times, Korea ExIm bank has committed around $US1 billion and Japanese and US export-import banks are expected to follow suit with funding of between half a billion and one billion dollars.

If the speculation proves accurate, the project should get the green light to move forward shortly.

Rinehart’s Hancock Prospecting owns 70 per cent of the Roy Hill development.

Wrapping up

In the oil sector, Shell Australia is rumoured to be close to exiting its Australian operations. According to The Australian Financial Review, Shell’s 900 petrol stations – many of which have a strong relationship with Coles – are up for grabs and could be picked up by a willing buyer shortly for around $3 billion. The news follows speculation of an exit by BP as well as the ongoing sale of United Petroleum.

In the IPO market, iBuy Grouphas raised $44 million through its IPO. The e-commerce group, which is due to list on the ASX this Friday, was only incorporated in August this year and consequently offers little in the way of past earnings to guide potential investors. While it is a small offering, the recent lacklustre listings and the speculative nature of the stock make it a float worth watching.

Finally, UGL has secured a five-year contract with Chevron Australia to provide maintenance services on the oil and gas major’s WA assets. The multi-million dollar deal includes extension options should both parties be keen for the relationship to continue beyond the current term.

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