DataRoom AM: Float fatigue

The $600 million float of travel insurer Cover-More was yesterday met with as much excitement as tax day, putting another major dampener on the prospect for a strong year for IPOs in 2014. Indeed, there are now six disappointments among the last seven most closely analysed listings and float fatigue is now obvious.

Elsewhere, the ACCC flags concerns with a Bluescope Steel purchase, Saputo looks to capitalise on Bega Cheese’s departure from the Warrnambool Cheese & Butter battle and the Western Australian government looks to shore up its finances with a privatisation spree.

IPO market

The last major float of the year went down like a lead balloon, leaving plenty of concerns heading into what investment bankers are hoping will be a strong 2014 for the IPO market.

With as much as $8 billion of floats forecast in the first half of 2014, all eyes were on travel insurer Cover-More yesterday to see if its $600 million listing could buck the recent trend of lacklustre floats. In a nutshell, it didn’t.

The major flop, which saw the company yield as much as 18 per cent before closing down 11.5 per cent, followed weak performances from Nine Entertainment, Dick Smith Holdings, Pact Group and GDI Property Group over recent weeks.

It has put a bitter taste in investors’ mouths heading into the festive season and placed doubt on the prospect for a bumper float crop in 2014.

A glimmer of light can be seen through the response to a taper of economic stimulus from the US Federal Reserve, which has seen share markets around the world climb higher. They will need to maintain that strength, and possibly push on, for the listing pipeline to swell in coming months.

Another positive is that you can make a case that many of the recent disappointments have been companies that are either highly priced – Cover-More entered on a price to earnings of 23 – or in the wrong sector – media (Nine) and retail (Dick Smith) aren’t the most attractive industries to be in right now.

Healthcare and tech listings have largely held up well and perhaps we will see floats limited to such sectors in the first quarter.

Taking a look back at the most closely watched floats of the year and just four of the ten are trading in the black. While there may have been a mini IPO boom – there were $4.2 billion worth of listings in the fourth quarter – many investors would have been burned.

Of those still trading above their listing price, Freelancer remains the best performed, up 180 per cent. Next in line is Virtus Health (56 per cent), followed by OzForex (35 per cent) and education group Vocation (8 per cent).

In the red column are Pact Group (-13 per cent), Cover-More (-11.5 per cent), GDI (-11%), Dick Smith (-5.5 per cent), Nine (-3 per cent) and McAleese Group (-2 per cent).

Notably, the group of six in red numbers all listed in December, while Vocation was the only of the four in the black to list this month is a sign that investors have become a little tired by all the action after a multi-year lull.

ACCC, Bluescope Steel, iSentia

The Australian Competition and Consumer Commission has relayed concerns over Bluescope Steel’s proposed purchase of Arrium’s OneSteel Sheet and Coil business.

The watchdog’s main fears centre on the sheet and coil distribution sector in Western Australia and could lead to the government body blocking the $23 million acquisition.

“Market inquiries have identified strong concerns that the proposed acquisition would remove OneSteel Sheet and Coil as an effective competitor and the main alternative to BlueScope in Western Australia, particularly for customers that require processed sheet and coil products," ACCC chairman Rod Sims said.

A final decision on the deal is due on February 20 next year, with further submissions invited until January 24.

When announcing the deal in October, Bluescope had hoped to finalise the purchase by the end of the year.

The ACCC had a busy day, also flagging potential issues with iSentia’s proposed acquisition of AAP’s media monitoring business.

In a statement of issues, the watchdog said its initial opinion was the takeover would result in a substantial lessening of competition.

The deal, at an undisclosed price, was announced at the end of October, with the ACCC deferring a final decision until February 20.

Saputo, Warrnambool Cheese and Butter, Kirin Holdings, Bega Cheese

Canadian dairy firm Saputo is desperate to strike a winning blow in the drawn out fight for Warrnambool Cheese & Butter by capitalising on Bega Cheese’s sudden exit from the race.

According to Business Spectator’s DataRoom, Saputo has requested its advisors to approach their counterparts at Bega and Kirin Holdings with the desired goal to claim the stakes of the two substantial WCB shareholders.

As we discussed in this column yesterday, if it can secure the shareholdings of Kirin and Bega, Saputo would be just a few per cent shy of a majority stake – and that may force rival Murray Goulburn to drop out of the race.

Western Australian privatisations

The run of privatisation is continuing apace as governments around the country look to get their budgets in shape.

The latest is news of the Western Australian government mulling a sale of gambling outfits Lotterywest and the WA TAB.

Treasurer Troy Buswell confirmed the rumours yesterday, though he insisted no decisions had been made. In other words, it’s not happening just yet, but it will.

Other assets to be considered for privatisation include ports and waste water treatment plants.

"Initially, we'll be looking at land and probably discrete pieces of infrastructure but down the track some of those government trading enterprises may be looked at," Buswell told reporters in reference to Lotterywest and TAB.

A sale of the TAB has long been expected, with speculation gathering momentum after the ACT government announced plans to sell its government-run TAB last month.

Once the ACT rids itself of that asset, WA will have the last state-run TAB in the country.

Wrapping up

Santos Limited has finalised a gas supply agreement with Origin Energy for its massive Gladstone LNG project in Queensland. The deal will see Origin supply 100 petajoules of gas over five years, in a follow-up to an earlier agreement for 365 PJ over 10 years. The deal goes some way to shaking energy supply concerns for the plant.

In resources, iron ore up-and-comer Aquila Resources yesterday announced China’s Baosteel had purchased a further 4.6 per cent stake in the business. The move sees Baosteel, which first bought into Aquila back in 2009, move to a shareholding of 19.9 per cent. The news has some speculating of a takeover play, with Aquila shares climbing 2 per cent on the news.

Finally, Mirabela Nickel is inching toward a recapitalisation deal, according to Business Spectator’s DataRoom, as a two-moth standstill agreement with creditors nears its end. The former market darling has found itself close to the scrap heap as the nickel market has failed to flatter.