DataRoom AM: Curds of prey

The side-door entrance of Fonterra into the race for Warrnambool Cheese and Butter has again shaken things up, putting minnow Bega Cheese into the front seat. Given how the takeover battle has proceeded so far, however, it shouldn’t get too comfortable in that position.

Elsewhere, Qantas flings cash the way of the expanding Jetstar Japan, Perpetual nears a conclusion of its Trust Company takeover, Royal Bank of Scotland mulls another Australian asset sale and Oroton Group teams with Gap Inc to franchise the US brand in Australia.

Warrnambool Cheese and Butter, Bega Cheese, Murray Goulburn, Saputo, Kirin Holdings, Fonterra

The lull in activity surrounding the Warrnambool Cheese and Butter takeover didn’t even last 48 hours.

Interested onlooker Fonterra finally showed its hand on Thursday afternoon, taking the route travelled by Kirin Holdings in claiming a slice of one of the key players. Unlike Kirin, however, the NZ dairy giant claimed a stake in one of the suitors, Bega Cheese, as opposed to the company at the centre of it all.

Fonterra is looking to climb to a 10 per cent shareholding in Bega at a price of $4.95, a 12 per cent premium on yesterday’s close. In so doing it has spotlighted which company it wants to win out, though it comes as no surprise it hopes for a Bega victory. The two alternatives – Murray Goulburn and Saputo – are not inspiring.

The first is Fonterra’s main rival in Victoria and would gain some of the scale required to become a true global competitor, while Canadian behemoth Saputo, as a new local entrant, presents a long-term threat given its size.

Between a minnow in Bega, a mid-size local rival and a major global competitor, the choice was easy.

Fonterra has also made the move in the likely event that Bega becomes a takeover target should it not gain control of WCB.

The decision should send Bega shares soaring today and if they climb to the $4.95 number Fonterra is buying at, then all of a sudden Bega’s offer of $2 a share plus 1.2 of its own shares looks good. Indeed, at a Bega share price of $5 its proposal is dead even with the $8 all-cash offer of highest bidder Saputo.

After its size all but ruled it out of the race a few weeks ago thanks to the entry of MG and Saputo, Bega all of a sudden has its nose in front, without altering its bid.

It wasn’t the only slice of good news for Bega either, with the ACCC yesterday indicating it would not oppose its planned WCB takeover. The group now could make its offer unconditional as early as next week.

It’s far from the end of the line for any of the three bidders, however, with a few twists likely yet.

We are still none the wiser as to which company Japanese group Kirin Holdings wants to win out and its 10 per cent position in WCB provides plenty of leverage. Still, it is highly unlikely to plump for Saputo, leaving Murray Goulburn and Bega to fight for its affections.

Perhaps Saputo’s only chance from here is to make a bid for Bega Cheese as well, though that would make approval from the Foreign Investment Review Board much harder to achieve. On the plus side the ACCC sees no significant competition issues from a Bega-WCB tie-up, meaning it will merely come down to an issue of national interest.

Prime Minister Tony Abbott and Treasurer Joe Hockey will be desperately hoping it doesn’t come to that as the pressure to knock it back will be intense from the Nationals in the Coalition.

Regardless of the end result the scrap has shown just how big the Asian dairy opportunity is viewed to be by the sector. Indeed, WCB is now just a pawn in a complex international game of chess.

Qantas Airways, Jetstar Japan, Japan Airlines

Qantas Airways has injected a further $60 million into its fledgling Jetstar Japan joint venture, with the cash inflow to be matched by fellow major shareholder Japan Airlines.

The move sees both parties lift their shares in the JV to 45.7 per cent, while minority shareholders Mitsubishi Corporation and Century Tokyo Leasing Corporation split the remaining 8.6 per cent.

The decision signifies the potential seen by Qantas and JAL in Jetstar Japan, though it will take significant investment to push it from an upstart to a major player. Already, however, it has become the largest low cost carrier in the country.

In a region long devoid of low cost carriers, Jetstar entered the market around the same time as two other low cost airlines and has comfortably outstripped the growth rates of both those rivals. Indeed, one of the two – AirAsia Japan – has already exited and the other has been forced to redirect its focus to international routes.

“The equity injection will support Jetstar Japan’s future fleet and infrastructure growth, enabling the carrier to capitalise on the significant potential of the low cost carrier market in the world’s third largest economy,” Qantas explained in a statement to the ASX.

Shareholders were not particularly impressed, however, sending Qantas stock down 1.5 per cent yesterday against a flat result for the broader index.

Royal Bank of Scotland

As the Royal Bank of Scotland presses ahead with its global ‘bad bank’ divestments, the focus has shifted to the group’s largest Australian exposure in the form of Royal North Shore hospital, according to The Australian Financial Review.

The paper believes RBS has already received interest from several suitors for the public-private partnership though may choose instead to pursue a refinancing of the asset. It could receive upwards of $1 billion should it decided to sell.

A divestment of Royal North would be the third major deal pursued in Australia by RBS this year, following news it will sell Axiom Education Victoria and Sydney’s CrossCity Tunnel, which recently entered receivership for the second time in its short life.

Perpetual Ltd, The Trust Company

Perpetual Ltd hopes to wrap up its takeover of The Trust Company before the end of the year.

After winning the most passionate takeover battle outside of the stoush for WCB and then gaining ACCC approval, the last challenge is to get the all clear from Trust shareholders. A vote on the $247 million deal is set down for November 28 and the board’s backing should see it comfortably go the way of Perpetual.

Investors appear happy with the deal having shown hesitance when it was first announced. Since the proposal received a tick from the ACCC, Perpetual shares have climbed more than 15 per cent and comfortably outshined the broader market.

Wrapping up

Oroton Group has confirmed it has signed a ten-year deal with Gap Inc to develop the Gap brand in Australia and New Zealand after first flagging an agreement deal a few weeks ago. It will have a similar opportunity for the Banana Republic brand and first rights for Old Navy should Gap franchise Old Navy in Australia and New Zealand.

In the IPO market, major Nine Entertainment shareholder Oaktree Capital has offloaded 40 per cent of its 26 per cent stake in the media group, according to The Australian, at the upper end of expectations. The long awaited Nine float is now just five weeks away. Elsewhere, JP Morgan and Goldman Sachs have launched the IPO of Hotel Property Investments, with the group valued around $500 million, according to the AFR.

Finally, Leighton Holdings subsidiary Leighton Contractors has secured a three-year, $249 million contract for the Isaac Plains open-cut coal mine in Queensland. The mining services deal was awarded by the mine’s owners, Sumitomo Corporation and Vale Australia.