DataRoom AM: Cereal solution

Archer Daniels Midland is hoping a last-minute sweetener will get its GrainCorp bid over the line, while BIS Industries puts its IPO on ice.

Is Archer Daniels Midland getting desperate?

The suitor of grains handling business GrainCorp has made one final pitch for growers to support the takeover as Canberra shows signs of capitulating to the demands of the Nationals. ADM is hoping its move to offer concessions will provide Treasurer Joe Hockey a way out of the mess, but in reality the rock and hard place may have hardly budged.

Elsewhere, Qantas may soon get its wish for change to the Qantas Sale Act, BIS Industries puts its float on the backburner and Bega Cheese weighs its options on Warrnambool Cheese and Butter.

Archer Daniels Midland, Joe Hockey, GrainCorp

Mark December 17 in your diaries.

Treasurer Joe Hockey’s decision on the proposed takeover of GrainCorp in three weeks’ time will cause a stir, regardless of what happens. On one side, the government risks a backlash over its ‘open for business’ promise should it block a deal, while on the other, an approval could set the fire under bubbling tensions between the Liberals and the Nationals.

Either way, it’s going to get a little bit messy.

Yesterday, American-based suitor Archer Daniels Midland lit the fuse a little more with plans to contribute a further $200 million to GrainCorp’s capital expenditure plans as well as offering three-year price caps on grain handling and storage charges.

The promises are something of a concession to the concerns of growers and may assist Hockey in making his mind up. If Hockey can make those plans binding commitments then it may provide something of a way out for him over the deal. That is, he allows the deal, but with conditions, as has long been speculated.

The problem is that the Nationals are adamant they don’t want the deal regardless of how stringent any conditions may be, which means Hockey’s tight spot has hardly been alleviated.

The deal does, however, show just how worried ADM is about recent events in Canberra. The Nats have stepped up their attack against the deal, Hockey has yet to show his hand and Prime Minister Tony Abbott has been rumoured as being an interfering force against the deal.

Investors, too, have been concerned, with GrainCorp shares recently retreating to their lowest levels since the deal was announced.

Even yesterday, after surging as much as 6 per cent on news of the sweetened offer, GrainCorp shares could only manage a gain of a little over 1 per cent. It’s hardly a sign of confidence that ADM will get its prized catch.

The news came as Queensland Premier Campbell Newman called for ADM to be forced to divest two port terminals should it win control of GrainCorp.

Newman added he supported the takeover as long as there were some conditions in place. In other words, it has his conditional approval.

That might end up being what GrainCorp gets from the federal government as well. It’s just a question of how onerous they may be and whether they go much farther than what ADM offered in the way of concessions yesterday.

BIS Industries, IPO market

The IPO market has finally started showing signs of fatigue.

Ahead of a big month of floats that could include the largest three of the year in Nine Entertainment, Pact Group and Cover-More, BIS Industries has backed away from its planned December listing citing a lack of demand.

The $500 million float of BIS by private equity owner KKR will now likely be pursued late next year, with the mining services company receiving muted interest thanks to concerns about the resources sector.

It appears BIS failed in its efforts to avoid the tag of ‘mining services company’ and instead be labelled an ‘infrastructure and logistics business’ more akin to Asciano and Aurizon Holdings than Monadelphuous Group, Boart Longyear and Emeco Holdings.

"This business is not connected to the (commodity) price cycle," boss Ian Lynass told The Australian earlier this month.

"If a commodity cycle changes, the business doesn't flow up and down with it. We're very distinctly decoupled from that."

Investors, which were already worried about the group’s debt profile, didn’t see it that way.

The question now is whether it represents a sign of genuine IPO market fatigue or a blip due to perceptions of the mining sector. Already we have seen Pact Group this week complete its bookbuild heavily oversubscribed and there’s little to confirm a cooling in the market just yet. Demand for Nine Entertainment, due to list on December 6, will be the true test.

Meanwhile, Quadrant Private Equity is looking to keep the IPO market rolling through a listing of market intelligence business iSentia, according to The Australian Financial Review.

iSentia, previously known as Media Monitors, was in the news late last month after purchasing AAP’s media monitoring business. That move now appears an attempt to raise the company’s revenue stream before listing.

The float, likely to take place in February, could raise $500 million for the private equity firm.

Qantas Airways, Alan Joyce, Joe Hockey

GrainCorp isn’t the only foreign investment issue on Joe Hockey’s agenda, with the treasurer yesterday putting possible changes to the Qantas Sale Act up for debate.

The treasurer yesterday recognised that Qantas no longer had a level playing field with Virgin Australia, given the latter was able to command such high foreign ownership. Still, one suspects Virgin has its own gripes about the benefits afforded to Qantas thanks to its position as the national carrier.

Hockey went as far as to say the conditions of the Qantas Sale Act left the airline “immensely inflexible” to respond to industry changes, according to the AFR. This left the options of pursuing a change to foreign ownership restrictions or offering similar support to that of the New Zealand government with Air New Zealand. When Air NZ got into trouble, the government was ready and willing to bail it out in return for a large equity stake.

His preference was the former, which could lead to a takeover and the loss of a national carrier. However, we needed a debate about the merits of either option, according to Hockey.

Qantas boss Alan Joyce welcomed the comments, though his call for “urgent” action, however, is a sign of just how hard hit Qantas is right now and it’s little surprise analyst forecasts for the airline have been downgraded drastically in recent weeks.

Elsewhere, Hockey has put forward a proposal to state and territory governments for incentives to sell off public assets and redirect the money toward infrastructure spending.

The details will be flushed out at the next COAG meeting on December 13.

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

As Murray Goulburn goes to the Takeovers Panel to dispute the latest offer for Warrnambool Cheese and Butter from rival suitor Saputo, the local dairy co-op is also reportedly pursuing meetings in Canberra to lift support for creating a national dairy champion.

Murray Goulburn is soon to submit its proposal to the Australian Competition Tribunal, with a decision likely three months away. That timeline puts MG at a disadvantage to the other bidders who have already received approval from regulators and been able to take their bids unconditional.

One of those, Bega Cheese, is still weighing its options on an appeal to the Takeovers Panel, pondering whether to join Murray Goulburn’s ticket or deliver a complaint of its own over the actions of Saputo.

The complaint of misleading actions from Saputo has been disputed WCB.

Meanwhile, Saputo’s latest substantial shareholder notice shows the group creeping up to a holding in WCB of 4.8 per cent, which is over 1 per cent above where it was the day before.

Wrapping up

Canadian pension funds continue to snap up Australian infrastructure assets. The latest development is Caisse de dépôt et placement du Québec’s purchase of 27 per cent of the Port of Brisbane from Global infrastructure Partners for over $1 billion, according to the AFR. The deal was reportedly signed last night, with Caisse beating out Australian super funds AustralianSuper and Industry Funds Management, among other names.

Elders has said it will likely pursue a capital raising of as much as $120 million after the March quarter as the market struggles to come to terms with the abrupt departure of its chief executive Malcolm Jackman.

According to the AFR, Elders will pursue the raising after its new chief executive has been selected and hopes it will be the last boost to capital they will need as part of the ongoing restructure strategy they have pursued.

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