The Australian IPO market is going to have a very strong end to 2013, but 2014 could be even better if the latest rumours prove accurate. Speculation is building that private equity-run Healthscope could return to ASX boards sometime next year and Queensland Motorways could join it, rather than pursue a trade sale as was previously expected. Add in the possibility of a Medibank Private float and you have three companies worth a combined $10 billion potentially making a splash in the market.
Elsewhere, the Rio Tinto-backed Turquoise Hill Resources pursues a raising of $2.4 billion on worries over Oyu Tolgoi, Bega Cheese makes a last ditch offer for Warrnambool Cheese and Butter, Virgin receives a funding injection and a merger between Fairfax Radio and Macquarie Radio Network appears no closer.
Healthscope, Medibank Private, Queensland Motorways, IPO market
American private equity firms Carlyle Group and TPG Capital are mulling a trade sale or public listing of Healthscope just three years after they acquired the Australian hospital operator in a deal worth $2.7 billion, including debt, according to The Australian Financial Review.
It’s yet another sign that private equity sees plenty of value in offloading assets at the moment, with the IPO market running hot and price-to-earnings multiples at a relatively high level historically.
According to the report, Healthscope may now be worth around $4 billion and while the owners are yet to commit to a divestment, they are reportedly planning to appoint advisors before Christmas to weigh up the respective values of a trade sale or re-listing on the ASX.
The speculation surrounding Healthscope first began in August, with The Australian suggesting advisors were circling at a time when the healthcare sector was rallying hard.
The strong run of healthcare stocks has continued since, while the IPO market has quickly moved from subdued to frenzied. In other words, if TPG and Carlyle were weighing up a float a few months ago, they’d be a lot more excited now.
Healthscope may not be the only multi-billion dollar offering next year, with The Australian reporting that Queensland Investment Corporation could chase an IPO, rather than a trade sale, for its Queensland Motorways subsidiary.
The toll road operator has been linked to super funds and Transurban Group, but given the market’s strength right now, QIC would be foolish not to at least consider a float of the $4 to $5 billion business.
If you add Queensland Motorways and Healthscope to the likely privatisation of the government’s $2 billion Medibank Private business, it could be a bumper year for floats next year, though Medibank Private may not make it onto boards until 2015, if at all.
Meanwhile, Freelancer.com is due to list today and expectations are high given the amount of press coverage, the heavily oversubscribed book build and limited amount of stock on offer. Expect a strong first day of trading.
Warrnambool Cheese and Butter, Bega Cheese, Murray Goulburn, Saputo
Bega Cheese has lobbed in its final offer for Warrnambool Cheese and Butter, but it appears unlikely to get the backing of the dairy group’s board.
The new, unconditional proposal raises Bega’s bid from $2 cash and 1.2 Bega shares for every WCB share to $2 cash plus 1.5 Bega shares.
At the start of the trading day the bid valued WCB shares at $8.87, but with Bega’s shares tanking during the day, it is now worth $8.68. This is comfortably below the highest bid of $9 a share from Murray Goulburn and WCB’s current price of $9.10.
Still, Bega doesn’t have any uncertainty surrounding its bid, with the group hoping to profit from shareholders keen to cash out now at a reasonable price rather than wait for MG’s offer to receive regulatory approval in three to six months, which is uncertain.
The WCB board advised shareholders to not react as it weighed up the merits of Bega’s new bid as well as the $9 offer from MG, but it made it clear that Bega’s shares were currently overvalued in their opinion and thus the offer wasn’t as good as it looks on paper.
All eyes now turn to Canada’s Saputo, which is widely expected to make a revised bid of over $9 in the coming days.
Rio Tinto, Turquoise Hill Resources
The 51 per cent Rio Tinto-owned Turquoise Hill Resources, formerly Ivanhoe Mines, is likely to proceed with a rights offer of as much as $2.4 billion after the miner was unable to complete project financing.
The funds are due to repay Rio for a $600 million bridge facility and a $1.8 billion interim funding facility, with Rio agreeing to extend the maturity from December 31 to January 15 to accommodate the rights issue.
Rio and Turquoise are working together on the massive Oyu Tolgoi project in Mongolia, but conflict with the government has caused several delays.
The most recent was Rio’s postponement of a $5 billion undergound expansion of the project back in July while it worked through several issues of contention with the local government.
The uncertainty resulting from strained government relations means Turquoise will be unable to achieve project financing this year, though it said there “is positive engagement” with the Mongolian government and “progress being made”.
The notion of progress is a loose one in this case, however.
The news comes as Rio prepares to submit a mine plan to US authorities with partner, and long-time rival, BHP Billiton for the $US6 billion Resolution copper mine in Arizona. That process should be a little more straightforward than Oyu Tolgoi.
Virgin Australia has announced a $350 million capital raising that is fully underwritten by its three largest shareholders, Air New Zealand, Etihad Airways and Singapore Airlines.
For the first time, however, the backing could come with a major condition: a board seat.
It appears as if all three companies may get a seat at the Virgin board table which would certainly spice things up. To date, while there has been little obvious tension between the three stakeholders, there has been little to suggest they are looking to work closely together.
Instead, all three have been keen to leverage their Virgin stakes for their own good, which has just so happened to be in all of their interests.
Question marks still remain about whether the three companies could hang on to as much as 75 per cent of the company without eventually leading to a privatisation. One suspects all three wouldn’t team on a privatisation and if it is going to happen, then we suspect Etihad and Air NZ would be the most likely bedfellows.
Regardless, there should be some rather interesting board discussions in the coming year or two.
Fairfax Radio, Macquarie Radio Network, Seven Network, Ten Network Holdings
Macquarie Radio Network chairman Russell Tate has, for the first time, admitted the group is in discussions with Fairfax Radio about a merger, but his comments provide little hope for an imminent deal.
"Talks occur from time to time and maybe one day something will happen," Mr Tate told The Australian yesterday.
"Suffice to say on the face of it at least there is a commercial case to be doing something together. One day it may happen."
The long mooted merger does indeed make sense for both sides, but the challenge will be settling on an agreeable deal. A fortnight ago the AFR reported that a tentative handshake agreement had been made, with both sides still working out the valuations of the respective companies to make a deal fair in the eyes of both parties.
That may take a while based on Tate’s comments.
Elsewhere in media, the AFR reports that Seven Network may have more than the 2.4 per cent stake in Ten Network Holdings that was disclosed by Ten this week. Instead, it may have closer to 5 per cent, with the stake built in case Lachlan Murdoch orchestrated a move to take the media group private. However, that seems unlikely.
CVC Asia Pacific may be looking to exit its 26.8 per cent stake in Jetset Travelworld through a block trade, according to the AFR. The bigger block trade hanging over the market, however, is Shell’s stake in Woodside Petroleum and the paper suggests its time could be coming, though don’t expect Shell to sell out its $7 billion plus shareholdings in one hit.
Elsewhere, a fund managed by Macquarie Group has been revealed by The Wall Street Journal as the buyer of a $160 million wind farm in South Korea from Acciona.
Finally, Henderson Global Investors has accelerated its Australian expansion through the purchase of Ascalon Capital Managers’ 45 per cent stake in H3 Global Advisors. Ascalon, a Westpac Banking Group subsidiary, has not disclosed terms of the deal.