DataRoom AM: Fairfax's new tune

The path to a Fairfax-Macquarie radio merger is logical but bumpy, while Borealis looks into a joint venture with Hastings and Allianz.

Fairfax and Macquarie Radio are again rumoured to be interested in combining their radio assets. A friendly merger may be complicated by past tensions, but with the involvement of key stakeholders Gina Rinehart and John Singleton, there’s every chance a deal could get done. Meanwhile, a Canadian pension fund eyes BG’s gas pipelines in Queensland, Mirabela Nickel knocks at death’s door, the battle for Sydney’s Cross City Tunnel heats up and Redbank power station goes belly up.

Fairfax Media, Macquarie Radio Network

Here we go again. The previously mooted merger of the radio assets of Fairfax Media and Macquarie Radio Network is back on, according to The Australian. The reported proposal for a “friendly merger” has everything from rich listers to shock jocks and perhaps even makes financial sense, a rarity in media these days. But there may be a few bridges to mend after similar talks collapsed two years ago.

In May 2011 Fairfax announced it would commence a sales process of its radio arm, with Macquarie flagging interest. Fairfax, however, decided in October 2011 that the offers it had received from several parties (including Macquarie) were insufficient.

Even then the logic of a tie-up remained, with Fairfax chair Roger Corbett admitting that the radio business was not integrated with its other business activities and, as such, was ripe for sale.

And despite the sour taste left at Macquarie — given the time and money it expended on the sale process — company chair Russell Tate remained convinced about the worth of the deal.

“…We continue to believe that the commercial case for combining Fairfax's national network with our strength in the Sydney market remains compelling,” he told shareholders post Fairfax’s retreat.

The wheels were again set in motion in December last year when John Singleton, Macquarie’s majority shareholder, bought into Fairfax with Macquarie board member Mark Carnegie (through Gutenberg Investments).

“With my preferred direct route closed, I have decided to pursue another path,” Singleton said at the time.

Singleton’s plans for Fairfax are expected to have the support of friend Gina Rinehart, a significant shareholder in Fairfax who remains keen for the media group to divest non-core assets.

The primary logic for a deal is the combination of Macquarie’s Sydney market leader, 2GB, and Fairfax’s market leading Melbourne station, 3AW. Having the top stations in the two biggest markets of the country is a compelling opportunity for cross-selling.

But the path from logic to a deal remains bumpy, with The Australian reporting that Fairfax is only keen to combine if it retains control of the merged entity. One rumoured proposal would see the Fairfax radio assets separated from the broader group and integrated to make Macquarie a larger listed entity.

For it to work, both sides will need to come to an agreement on the worth of Fairfax’s radio assets, which is a challenge given the wild valuation variations put forward from investment banks since 2011. At the high point the division could be worth close to $300 million, while lower valuations come in around $100 million.

Macquarie Radio, meanwhile, has a market capitalisation of $80 million, which means its potential to launch a full takeover is limited.

BG Group, Borealis Infrastructure

The Canadian pension funds are almost always in the picture when it comes to Australian infrastructure assets, and so it is with a sale of BG Group’s gas pipelines — which are related to the $21 billion Curtis LNG project in Queensland.

According to the The Australian Financial ReviewBorealis Infrastructure has sought counsel from RBC Capital Markets and Morgan Stanley on a joint venture deal with Hastings and Allianz.

Reports in February said BG Group was mulling a sale of the assets as part of a wide ranging debt reduction plan, with APA Group declaring its interest at the time — and again in May. Other interested parties for the multi-billion dollar deal could include Queensland Investment Corporation in a JV with Industry Funds Management, with the AFR suggesting an auction will be run by BG advisor Goldman Sachs before year’s end.

Borealis has reportedly also shown interest in another Queensland opportunity — a stake in the Port of Brisbane — and has recently opened an office in Sydney, a signal of intent with regard to the Australian market.

A BG spokesperson declined to comment on the most recent speculation, while Borealis had not responded to requests for comment by time of publication.

Cross City Tunnel, Transurban

Staying with infrastructure and expressions of interest in Sydney’s Cross City Tunnel, currently in the hands of receivers KordaMentha, are due today.

As we mentioned previously in this column, the deal is likely to be worth around $500-$600 million, which is in the realms of the most recent forced toll road sale, that of Clem7 in Brisbane at the end of September.

Transurban is the frontrunner given the synergies it will be able to leverage, with the AFR also expecting Hastings Fund ManagementMacquarie Infrastructure and Real Assets and Abertis Infraestructuras to take part — all of which fell short in the race for Clem7.

A deal is hoped to be finalised early next year.

Mirabela Nickel

Mirabela Nickel has entered the trading halt pending “an announcement in relation to a company and an operational update.” It will be the third such update in the past fortnight and the last two have done nothing to excite investors.

The most recent development has been the loss of one of its two customers, which throws its credit facilities into question. It also led Moody’s and S&P to downgrade the debt rating of the nickel miner last week.

Shareholders are holding their breath for the latest news and optimism is all but gone.

Before the halt the company’s share traded at 1.6 cents, a far cry from its 52-week high of 60 cents and all-time high of around $7.

Redbank power station, Redbank Energy

Redbank power station has called in receivers KordaMentha after plans to restructure almost $200 million in debt failed to be agreed by owner Redbank Project. The appointment of receivers did not include for ASX-listed Redbank Energy, of which Redbank Project is a subsidiary.

The scarcely traded Redbank Energy currently sits at $8, though the price is rather deceptive as its market capitalisation is a mere $6 million. It is in a trading halt while it mulls the impact of the developments. In the meantime the power station is running as normal.

Wrapping Up

In dairy, Bega Cheese chairman Barry Irvin has said the company is happy to play the waiting game with its bid for Warrnambool Cheese and Butter. In an interview with Business Spectator’s Data Room, Irvin explained that the company currently had no intention to raise its bid and would be seeking a board seat once its shareholding clears 20 per cent (it is currently sits at 17 per cent).

Meanwhile, the float of transport group McAleese Group is still expected before the end of the month, with pricing of the share listing expected to result in a market capitalisation of $446.5 million, according to the AFR.

Elsewhere, Melbourne-based Computershare has purchased a Canadian transfer agent for $A45 million. The transaction is expected to be finalised in December.

And offshore, the biggest UK government float in two decades is nearing the deadline for applications with shares in Royal Mail to start trading on October 15. The listing will likely value the business at around $A5.6 billion.

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