DataRoom AM: BHP cold shoulder

BHP’s large-scale demerger plans fail to impress UK investors, while talk of Qantas selling part of its frequent flyer business is quickly being stamped out.

The world’s largest miner, BHP Billiton, has confirmed a demerger that everyone was trumpeting at the end of last week -- so why did the firm’s stock slump 5 per cent in London trade?

Elsewhere, Qantas Airways shies away from a sale of its best performing division, AGL Energy mulls a capital raising beyond market expectations and QBE Insurance makes good on capital management rumours.

BHP Billiton has moved on plans to separate its non-core assets from the rest of its business via a $10-$15 billion demerger in the back half of next year. The decision will see the firm’s Cerro Matoso NickelEnergy Coal South AfricaIllawarra Metallurgical Coal and Cannington Silver-Lead-Zinc mines join its manganese and aluminium assets in a separate vehicle, to be listed on the Australian and the South African stock exchanges. The major surprise was the decision to leave out the Nickel West business, which the company is still hoping to divest via a trade sale.

Discussions of a demerger were well received by investors at the end of last week, but it seems the devil is in the details as the firm’s London stock tumbled 5 per cent overnight. Part of the reason for the decline was a decision not to pursue a multi-billion dollar share buyback, as the market had long expected, while UK-based investors were also displeased with the choice not to list the new vehicle on the FTSE. Such a move could result in downward pressure on the new entity in its early days as UK investors that aren’t able to hold foreign stock head for the exit.

Meanwhile, speculation is again running hot around Qantas Airways eight days out from the release of more details around its strategic review. According to The Australian Financial Review, a partial divestment of the firm’s high-growth frequent flyer business is increasingly unlikely ahead of a final board decision early next week.

The sale of part of the $3bn business to a private equity firm has been ruled out, while a float of a minority stake in the division is still on the table, but only just. The national carrier is, however, believed to be making progress on plans to sell the leases for its Melbourne and Sydney airport terminals.

In energy, AGL Energy is likely to ask investors for a major cash injection today to fund its $1.5bn purchase of Macquarie Generation. A raising of $1.2bn has long been anticipated by the market but, according to the AFR, the energy retail giant could bump the raising up by $100m to $1.3bn.

Also tapping investors this week is QBE Insurance, which has, as expected, announced plans to raise $US750 million ($804m) from institutional and retail shareholders. The former will receive access to $US600m worth of stock, while retail investors will be offered $US150m. According to the AFR, the institutional placement has been well received, with the raising oversubscribed at the upper end of the price guidance.

The troubled firm has also outlined plans for a partial float of mortgage insurance business QBE LMI in 2015, while again flagging the divestments of its US agency business and Central and Eastern European operations.

Elsewhere, Anchorage Capital Partners has validated speculation it will sell its remaining 20 per cent stake in Dick Smith, hiring Macquarie Capital as financial adviser for the potential $100m deal. It is, however, unclear if it will pursue a block sale or a gradual sell down of its stake.

Finally, Hills Limited has confirmed it will continue its acquisition spree, with “one or two” deals in the works in the security and health technology sectors, while the AFR reports that Mitchell Services will ask shareholders for $20m to fund its bid for control of Tom Browne Services.

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