DataRoom AM: Cheese puff

The ongoing battle for control of Warrnambool Cheese and Butter has taken a further twist with Murray Goulburn once again trumping the offers of Bega Cheese and Saputo. The latter, which is favoured by the board, arguably now has the lowest bid on the table. Crucially, it may not hold the luxurious advantage of regulatory approval over Murray Goulburn for much longer if lobbyists get their way.

Elsewhere, the government reportedly mulls an equity stake in Qantas Airways, McAleese Group has a strong first day on the ASX, Nine Entertainment nears its bookbuild and Forge Group negotiates a desperate deal with ANZ Banking Group.

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

The Warrnambool Cheese and Butter board has plenty of thinking to do after Murray Goulburn raised its offer one more time, to $9.50 a share.

The move leaves MG with the highest bid, ahead of Saputo and Bega Cheese. The latter’s cash-and-scrip offer is now worth $9.11 a share on the back of recent gains in its share price, while Saputo’s offer is $9 plus a 20 cent bonus should it get to 50.1 per cent acceptances, which looks very unlikely at the moment. As such, a case can be made that the board’s preferred bidder now has the lowest offer.

For now the board is telling shareholders to take no action until it releases a formal response to the new proposal, but it certainly throws the cat amongst the pigeons.

Interestingly, the WCB share price rose less than 1 per cent to $9.32, which is around 2 per cent below the new offer. This signifies investors believe a counterbid from Saputo is unlikely and, possibly, that investors believe WCB is likely to stick with Saputo as its preferred suitor.

It does, however, buy Murray Goulburn a little more time, with both the new offer and this week’s appeal to the Takeovers Panel over Saputo’s alleged misleading actions inching us closer to the prospect of Christmas coming and going with no victory celebration for any party.

MG desperately needs the time as it likely has three months to sit out waiting for regulatory approval – and that isn’t a sure bet to be forthcoming.

Still, MG is trying to speed up the process, hiring seasoned lobbyists Bespoke Approach – which lists Alexander Downer as a partner – to push its case for an early hearing with assistance from Canberra.

Regardless of that outcome, the bid does call into question the actions of the WCB board. Did they rush their support of the Saputo offer and, by scarcely liaising with Bega and MG, fail to attract the maximum out of a deal?

The bigger question now though, is whether the WCB board will see the premium of Murray Goulburn’s bid worth hanging around for given the uncertain regulatory process.

While questions can be asked about the handling of the takeover saga, the process has still been a good one for long-term WCB shareholders, with the stock price well over double that on offer before Bega first made a takeover attempt. The best offer is now also 65 per cent above where the bidding began and 27 per cent higher than the upper estimate of the company’s worth by independent expert KPMG.

All of which leads to the final question: has the bidding got out of hand?

Qantas Airways, Virgin Australia

The backlash to Virgin Australia’s latest equity raising from Qantas boss Alan Joyce appears to have had the desired effect for the national carrier.

The government is now firmly looking into the prospect of making significant changes to the Qantas Sale Act among several options to ensure the national carrier does not turn into a casualty.

Essentially there are three options: the foreign ownership restrictions are scrapped, the government claims a stake in the company should it require a funding injection or the government offers a guarantee over Qantas similar to that it has in place with the banks.

The problem with the first is one of politics. The Labor Opposition has come out against the plan and it will fail to clear the Senate in the near-term, and perhaps even when the new Senate is ushered in around the middle of next year.

The problem with the second option comes down to the issue of picking winners, but that might not stop it proceeding.

According to The Australian Financial Review, Treasurer Joe Hockey has been discussing the prospect of buying a stake in the airline in the vicinity of 5-10 per cent, which would likely cost between $150 and $250 million.

While the final option of acting as guarantor is not likely to be pursued, the above option is considered a plausible way to act as guarantor without actually agreeing to anything in writing. It essentially says to lenders the government is serious about protecting the company.

In truth, Qantas likely already has an informal government guarantee as one suspects no federal government would want the death of national carrier on its hands, meaning they would step in regardless of the potential cost.

It remains hard to see, however, how any of this would solve Qantas’ problems. All it does is alleviate the risks of things getting much worse.

Nine Entertainment, McAleese Group, Seek Ltd, IPO market

Fears that the lack of demand for a float of BIS Industries represented a sign of fatigue in the IPO market appear unfounded.

The latest indication of strength was yesterday’s 7 per cent gain in the shares of transport company McAleese Group on its first day on ASX boards.

The company, which cut its expectations on a float after a tragic accident raised safety fears about its fleet, saw its shares close at $1.57, comfortably higher than the $1.47 listing price. Still, the securities remain below the $1.65 a share price the company had sought prior to the tragedy.

As of the close of trade its market capitalisation is $465 million.

The float continues the strong recent trend, with OzForex and Freelancer.com among the recent success stories.

However, the true test comes in December when Veda, Vocation, Nine Entertainment, Dick Smith Holdings, Cover-More and Pact Group are slated to hit ASX boards.

The biggest of the lot is likely to be Nine, which has been pleased with the response to its investor roadshow, according to the AFR.

The bookbuild will be carried out on Tuesday, with the shares expected to price toward the middle of the $2.05 to $2.35 range.

The company is hoping to raise almost $700 million through a December 6 listing, which would make it the largest of the year. Given the high profile of Nine it is likely to continue the trend of strong first days for newly floated companies, assuming it prices at the middle of its range or below.

Elsewhere, Seek Ltd has announced its 50 per cent-owned IDP Education will be listed on the ASX in 2014. The float follows the imminent listing of education provider Vocation, which has been well received.

The IPO is likely to be worth $300 to $450 million for Seek and IDP’s other 50 per cent shareholder, Education Australia, which is backed by 38 local universities.

Macquarie Capital, which was a lead advisor on the Vocation float, has been called in as a joint lead advisor along with Goldman Sachs.

Forge Group, ANZ Banking Group

An 84 per cent fall in the share price of Forge Group yesterday was both spectacular and disturbing. After exiting a trading suspension, during which many rumours spread about its financial woes and dealings with lenders, the mining contractor saw its shares plummet.

The update the company provided the market was far from reassuring with $127 million in writedowns to two power station contracts, with $45 million needing to be spent to deal with the issues. The problem was acute given the company had just $44 million cash on hand at the end of October, leaving it to pursue negotiations with lender ANZ Banking Group.

The deal it has now secured with ANZ sees it increase its debt facility with the bank from $11 million to $60 million, with ANZ receiving share options in Forge equivalent to 13 per cent of the company’s equity.

Wrapping up

Origin Energy has signed a deal to supply gas to BG Group’s Curtis LNG project in Queensland. It is the latest agreement between groups looking to tap gas resources off the Queensland coast as they try to reduce the tens of billions of dollars in costs that threaten to make the massive projects less lucrative. The conditional agreement will see Origin supply BG-owned QGC with up to 30 petajoules of gas at Wallumbilla in the next two years at rates linked to oil prices.

In finance, British and South African-based Investec is considering offloading a large chunk of its Australian operations, with advisory group Greenhill called in to assess the possible sale of its professional finance and asset finance & leasing divisions. All eyes are on the big four banks, though interest may also be forthcoming from regional banks and Macquarie Group.

Elsewhere, ASX-listed Specialty Fashion Group has purchased Rivers Australia. The latest action on the retail front sees Specialty claim the Rivers brand and assets for $5 million.

In real estate, Charter Hall Group has offloaded its 50 per cent stake in the Little Bay Cove project for an undisclosed amount to TA Global Development. The deal, to be finalised next year, is not expected to have a material impact on the company’s financials.

Finally, Ausenco Ltd has announced a $31.5 million capital raising to reduce debt levels. The four for 11 offer to institutional and retail shareholders will be made at a substantial 41.7 per cent discount to the trading price prior to the announcement.