Dataroom AM: Dick smitten

Details of the December 4 listing of Dick Smith Holdings are now clear and investors are lapping up yet another IPO in the late year flurry. But are they being overzealous in their rush for a piece of the electronics retailer?

Meanwhile, the Warrnambool Cheese and Butter takeover nears a tipping point, the ACT government looks to offload its struggling wagering business and financial services firm Onevue joins the list of floats for 2014.

Dick Smith Holdings

The Dick Smith Holdings prospectus has been released, confirming plans to raise $344.5 million through an IPO in December.

It had originally been expected the electronics retailer, bought by Anchorage Capital Partners for a grand total of $94 million from Woolworths just on a year ago, would raise $300 million through the float, but the hot IPO market has the group’s owners looking for more.

The group will list on December 4 at a price of $2.20 a share. It will have a market capitalisation of $520.3 million and an enterprise value of $533.8 million.

Given investor concerns of owners jumping ship upon listing, Anchorage and senior management have volunteered to hold their stock in escrow for a set period of time.

Chief executive Nick Abboud’s 6.5 per cent shareholding coupled with the 20 per cent retained by Anchorage will not be tradeable until at least after the release of FY2014 results. In the case of Abboud, he will only be able to offload as much as 36 per cent of his stock post the next financial year results, with the rest being able to be sold post the release of FY2015 figures.

Other key management personnel will hold 5 per cent and, in a similar arrangement to Abboud, will be required to retain all shares until FY2014 results and 50 per cent of shares until the announcement of FY2015 numbers.

The quick turnaround for Anchorage, however, provides cause for investor concern.

Admittedly, Woolworths sold on the cheap because it had bigger fish to fry and profitability has improved since, but rumours of scale-backs in the order of 15:1 in some cases during the bookbuild suggest demand is way too high for a company in the traditional retailing sector.

It appears investors have taken on trust an assertion from management in the prospectus that “many of the trends driving the decline in the Australia and New Zealand consumer electronics market in recent years have ceased or diminished”. That appears optimistic as few are crowing about the health of traditional retailers at this point in time, while the biggest trend, a shift to online purchases, is still a major issue.

If none of that worries investors then this comment should:

"Pretty much any IPO is hot at the moment, you don't even have to bother reading the prospectus because you know there will be more demand once it hits the market," a fund manager told The Australian.

In other words, close your eyes and jump in, because people will be buying in a frenzy regardless of what it is. No wonder private equity has been such a significant a net seller of late.

Investment banks and lawyers, meanwhile, are enjoying the IPO market recovery more than most, with plenty of fees being spread around.

The big winners in the Dick Smith float were joint lead managers Goldman Sachs and Macquarie Capital, which will receive fees of at least 2.75 per cent of the offer ($8.6 million), plus certain expenses and the prospect for 0.75 per cent in incentive fees.

Meanwhile, lead legal advisor Minter Ellison received $1.3 million up until the release of the prospectus.

Ernst and Young, which acted as tax adviser, and PwC, which served as investigating accountant, had been the beneficiaries of fees worth around half a million dollars come the time of the prospectus issuance.

All-up, around $21 million in fees and expenses will have been incurred during the listing process.

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

The clock is ticking on the Warrnambool Cheese and Butter takeover, with Saputo soon to begin receiving acceptances for its WCB board-approved $9 a share bid. The Canadian company is reportedly mulling stepping up the chase by buying WCB shares on market and altering its bid to see shareholders possibly receive as much as $10.31 a share.

David Lord, chief executive of WCB, has already put his money where his mouth is by selling his 10,000 Warrnambool shares to Saputo and expects his fellow execs to follow suit in a clear sign that the group is comfortable it can’t extract any significant premium to the current offers.

Saputo will still struggle to gain control, however, with Murray Goulburn, Bega Cheese and Kirin Holdings – which remains the quiet wildcard in proceedings – hanging onto around 46 per cent of stock. This may even be higher as Bega has received some acceptances for its offer. As such Saputo’s hope to get to 50.1 per cent acceptances appears forlorn.

In the meantime Murray Goulburn has confirmed plans to raise $500 million through a Fonterra-like partial listing that will see farmers retain 100 per cent control of the dairy co-operative.

A shareholder vote will not take place until May, dictating that the raising will be separate to the current takeover battle. Instead, the company has agreed facilities with lenders National Australia Bank, ANZ Banking Group and Westpac Banking Corporation to fund its $9 a share bid, which could yet be raised one last time. And should that be the case, the planned $500 million raising wouldn’t hurt negotiations with the banks.

MG remains the outsider in the race due to its inability to receive regulatory approval for at least another three months, something the group’s chairman Philip Tracy explained as being akin to having one hand tied behind their back.

That hand could partially released, according to some analysts, if MG teamed with Bega on a deal, though that appears unlikely.

''The brutal reality is we are not going to sell into Bega,'' Murray Goulburn boss Gary Helou advised on Friday, according to The Age. ''Bega has got to sell into us, or merge with us.”

Given Bega has a significant shareholder and customer in Fonterra that is a rival to MG, that appears unlikely.

Instead, a stalemate appears the best bet from here.

Onevue

Privately owned financial services firm Onevue is preparing for a listing in the second quarter of 2014.

The investment platform and fund services provider cleared the decks for the IPO through a capital raising, which will carry it safely through until the float.

Among the major investors in the raising were Perpetual Limited and Thorney Investments. The group has so far received $6.75 million of its $8 million target and said the interest it had received so far goes well beyond the target figure.

The privately-owned group has over 200 advisers nationwide.

ACTTAB, ACT government

The ACT government will sell its struggling gaming business rather than inject cash to boost its performance.

With profit falling consistently each year in the wake of more competition, the government believes it must sell now or risk it being valueless in a few years’ time.

ACTTAB, the smallest TAB in the country, will be offloaded through a bid process that should be completed before the end of the financial year, state treasurer Andrew Barr said on Friday.

The price sought was not disclosed, though given the TAB only made $1 million in profit last year, a figure in the low tens of millions seems likely.

Following the sale, the last remaining TAB left in government hands will be in WA.

Wrapping up

Bis Industries, which is currently in the middle of a process to float on the ASX, will pay $30 million to acquire industrial transport business Powertrans. The KKR-owned group is expected to list next month with a valuation of close to $1.5 billion.

Meanwhile, Charter Hall Retail REIT has announced plans to pay $100 million for Melbourne shopping centre Rosebud Plaza for $100 million. The deal will be primarily funded through an equity raising of $88 million.

Elsewhere, Redcape Property Group’s Hotel Property Investments float is proven a boon for bankers and lawyers, with $12.4 million of fees to go with the $279 million float, according to The Australian Financial Review. That represents 4.45 per cent of the total value of the float.

Finally, Melbourne-based billionaire Anthony Pratt has successfully raised $US200 million to build Pratt Industries’ fourth recycled paper mill in the US. It will be built in Valparaiso, Indiana, where the bonds were issued, with construction to being in March.