DataRoom AM: Boral fixation

Boral’s tie-up with the Warren Buffett-backed USG has the market amped, while Ten dodges a dilutive equity raising.

Boral’s joint venture with the Warren Buffett-backed USG has markets in a fizz, with investors backing the former as the big winner. But did it have the opportunity to bargain for a better deal with another party? Elsewhere, the big backers of the Ten Network again help it out of a funding hole, minus the assistance of mining magnate Gina Rinehart, while RHG continues to weigh up its takeover offers and Dexus’ property move gets a tick from a leading ratings agency.

Boral, USG, Knauf

A $US1.6 billion joint venture between ASX-listed Boral and US-based USG is being touted as a great opportunity for both groups to develop their Asian footprint. The complex deal will see USG pay Boral $US500 million (plus the potential for a further $US75 million) for a 50-50 share in the JV given Boral is bringing a bigger business into it.

It is essentially a plan for USG to gain access to Boral’s manufacturing and distribution strength while Boral receives the benefit of USG’s technological know-how.

The arrangement will see Boral offer its Gypsum division, which includes its Asian and Australian plasterboard operations, to the JV. USG, meanwhile, will chip in access to its plasterboard technologies as well as its small Asian and Middle Eastern operations.

Boral shares surged 6 per cent on the news, while USG dipped 2 per cent overnight. The USG fall is largely related to its Q3 results miss, but the contrasting investor reactions still tells one simple tale: cash is king.

Boral shareholders are delighting in a new opportunity and money in the pocket, enough to curb calls for a capital raising. They are, however, overlooking the loss of half of their fastest growing business.

The development has a lot to do with the strong links of Boral chief executive Michael Kane to USG, where he spent 25 years of his working life.

However, there is concern the company may have been too keen to get into bed with USG at the expense of a competing offer from Germany’s Knauf, according to The Australian Financial Review. The paper believes Knauf sent similar plans to Boral six weeks ago regarding an Asian JV, which were allegedly overlooked as Boral ploughed ahead with a deal for USG.

Adding further intrigue is that Knauf owns 14 per cent of USG, whose biggest shareholder is Warren Buffett’s Berkshire Hathaway.

We may hear more about this, but for now the Boral board can feel well pleased with the paying down of debt and the exuberant investor response.

Ten Network Holdings, James Packer, Gina Rinehart, Lachlan Murdoch

Ten Network has arranged a $200 million debt facility with the Commonwealth Bank, dodging the need for yet another dilutive equity raising.

Ten chief executive Hamish McLennan said the struggling media group received “favourable terms” thanks to the backing of companies linked to major shareholders James Packer, Lachlan Murdoch and Bruce Gordon. Another leading shareholder, Gina Rinehart, was not mentioned in relation to the deal, which requires shareholder approval at December’s AGM.

Essentially Murdoch, Packer and Gordon are acting as guarantors in exchange for security over Ten’s assets (and a small fee), hence why the deal has to go through shareholders.

The Rinehart move, or lack thereof, is intriguing. It may be of no significance other than Rinehart was preoccupied with other matters, but it is not as if the mining magnate isn’t able to guarantee a loan of $200 million. More importantly, it comes after a reluctance to participate in the company’s most recent equity raising and is perhaps a signal media investments are no longer a priority.

Rinehart is, however, expected to approve the transaction through her shareholder vote.

RHG, Resimac, AMAC, Cadence Capital, Pepper Australia

RHG, the former RAMS group, has entered a suspension as it mulls the latest takeover bid from Resimac/AMAC. The details of the latest bid are unknown, but given the complexities of the revised offer from rival suitor Pepper Australia and Cadence Capital, there’s likely to be plenty to work through.

Upon entering suspension just after open yesterday, the home loans group said it expected to make an announcement around midday. That deadline came and went with no acknowledgement, and we are still none the wiser as to the board’s view of the new proposal. Expect some news today.

Dexus, CPA, CPPIB, Moody’s

Last week’s multi-billion dollar move on the Commonwealth Office Property Fund by Dexus – in conjunction with the Canadian Pension Plan Investment Board – may not have won the support of CPA’s management, but it has ratings agency Moody’s singing its praises.

It’s rare that a takeover would be a positive for the credit rating of a company, but in this case Moody’s is adamant the deal is a good one for Dexus. The ratings agency said it has placed the company on review for a ratings upgrade pending the results of the bid.

“The acquisition would further solidify Dexus’ position in the Australian Central Business District office market and make it the largest owner and manager of prime Australian office property,” Moody’s advised, with the added scale and conservative funding structure leading to the potential for upgrade.

That review gives further strength to the rebuff from CPA management, who are holding out for something significantly more than the ‘no premium’ offer that currently stands before them.

Wrapping up

Troubled gold miner Newcrest has agreed loan facilities for an extra $US450 million in capital with two banks. The company has also decided to amend some of its R&D claims from a few years ago, which will result in a cash tax payable this financial year of $70 million.

Meanwhile in energy, indicative bids for the NSW government’s Macquarie Generation are due Monday, with Shenhua GroupERM Power and AGL Energy considered the lead contenders. The issue the government has in offloading them at a price to their liking is the softness of electricity demand over the past few years.

Meanwhile, first round offers for United Petroleum are due at the end of the month, according to the AFR, with Carlyle Group and Affinity Equity Partners listed as possible private equity buyers of the $1 billion business. Puma Energy, which has been on a spending spree this year, is also a possible suitor.

In the IPO market, DorsaVi, a human movement tech group, is looking to raise $14.5 million through its IPO, according to The Wall Street Journal. The listing will value the group at $45 million.

McAleese Transport is also pushing ahead with a listing in the next couple of months, according to a Fairfax report, with the group refreshing its fleet in a bid to allay safety fears.

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