DataRoom AM: Dick Smith gift?

The owners of Dick Smith appear happy to try their luck on the market pre-Christmas as the IPO market starts to ignite. Expect the float to leave a bitter taste in the mouth of Woolworths’ shareholders. Nine Entertainment, meanwhile, is spending up big ahead of its IPO, hoping to show off its digital potential to investors before a December listing. Elsewhere, the manager of the Commonwealth Property Office Fund rebuffs Dexus, a KPMG review finds Bega’s Warrnambool Cheese and Butter bid undervalues the group and queries are raised about the valuation of the Cross City Tunnel.

Dick Smith Electronics, Anchorage Capital, OzForex, IPO market

It appears the IPO market is too hot for Anchorage Capital Partners to risk pushing back a float of Dick Smith Electronics until next year.

According to The Australian Financial Review, Macquarie Bank and Goldman Sachs are drumming up interest in an IPO that could be worth around $600 million. It’s a quick turnaround story for the retailer that was picked up from Woolworths for just $20 million last year.

You get paid more to recycle on the ASX than in South Australia, it seems.

Anchorage appeared to already be angling for a sale or float of the business in July, when it paid $74 million to exit an agreement that would have seen Woolworths receive 25 per cent of any future sales proceeds.

That arrangement, like the $20 million deal to buy Dick Smith, appears to be well in the money and Woolworths’ shareholders have every right to feel a little aggrieved.

Anchorage has undoubtedly been encouraged by the success of the latest ASX float; that of OzForex. The listing of the currency exchange specialist has been so well received that market players are talking of a significant revival in the IPO market.

OzForex, which lifted 28 per cent on its first trading day last Friday, gained another 2 per cent yesterday to show it wasn’t just a one day wonder.

The resurrection of the IPO market is best highlighted by the steady flow of new float plans. The latest includes a confirmed listing of Freelancer.com on November 15, according to The Wall Street Journal, and floats of Redcape Hotel Group and the Australian shipping business of HK’s Pacific Basin, according to the AFR.

Add this to possible and confirmed floats of Pact Group, Spotless Group, Nine Entertainment, Meridian Energy, the Australian Pub Fund and Retail Zoo (the owner of Boost), and you have yourself a resurgence.

Indeed, you can almost hear the collective sigh of relief from investment bankers across the country.

Nine Entertainment

Nine is gearing up for a float in an unusual way – by going on a spending spree. Its latest acquisition is a buyout of Mi9, a digital joint venture it set up with Microsoft in 1997.

The cost of the 50 per cent it did not already own was around $50 million, according to The Australian, and follows hot on the heels of an agreement to buy the Win stations in Adelaide and Perth. The network has also signed massive contracts to retain NRL and cricket broadcasting rights over the past year or so.

For Nine, the move to claim full ownership of its digital business clears the way to chase a Netflix-style online subscription video service.

While all the activity may add to its value, the risk remains the company’s debt load. The float on December 16 will help to pay down debt, but – even though this deal may have been paid off through Nine’s share of the Mi9 cash pile – investors will be a little wary. After all, the history of the media group is a troubled one when it comes to heavy debt loads.

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

An independent valuation of Warrnambool Cheese and Butter from KPMG suggests the offer from Bega Cheese greatly undervalues the dairy group.

According to KPMG, full control of WCB is worth $6.96 to $7.49 a share, a range the current share price falls into, along with the $7 all cash offer from Canada’s Saputo. It is, however, significantly above the current worth of the Bega offer, with it falling 30 cents short of the lower end of the valuation.

As a result, the board of WCB has reiterated its backing of Saputo’s proposal in light of a superior offer emerging.

Bega Cheese may yet try and produce that, with its chairman, Barry Irvin, telling Business Spectator’s Data Room that a new bid could be forthcoming if its proposal gets the green light from the ACCC in coming weeks.

“We do reserve our right to review our bid,” Irvin said. “We’ve got a number of weeks to think about it.”

The sleeper in all this is Murray Goulburn, a former suitor of WCB and owner of its 17 per cent of its stock. Its only contributions to the chatter around the two bids thus far have been two press releases saying the company was reviewing its position.

Dexus, Commonwealth

As expected the $2.7 billion Dexus-Canada Pension Plan Investment Board bid for the Commonwealth Property Office Fund will need to be lifted if the consortium wants to win the support of the fund’s manager, Commonwealth Management Investments Limited.

“After careful consideration, the board has determined that the Dexus Proposal does not provide a compelling value proposition for CPA unitholders,” Richard Haddock, the independent chair of CMIL, informed the market yesterday. “Consequently, we have advised the consortium that CMIL will not grant access to the due diligence material, nor progress the Dexus proposal at this time.”

Right now the bid values CPA at $1.16 a share, three cents below its closing price on Monday. If Dexus wants to tie up a deal, its JV partnership will need to at least get its offer into the $1.20s.

Wrapping up

Documents on the Cross City Tunnel, released last week to prospective buyers, show a more troubled business than expected, according to The Australian. Traffic has reportedly gone backwards the past two years, which may mean the sale price may be at the lower end of the $500-$600 million range expected.

Moving to property, Credit Suisse has been chosen as the lead underwriter for a $600 million property company GDI Property Group plans to list on the ASX in November, according to The Australian.

Finally, Bluescope Steel yesterday said it will pay inventory value ($23.1 million as at September 30) for Arrium’s OneSteel sheet and coil processing and distribution businesses in Sydney, Brisbane, Adelaide and Perth. The deal is a far cry from the long touted merger of the two former BHP businesses.