DataRoom AM: Foreign turnaround

Yanzhou has been given the all-clear to maintain its Australian investments, while Saputo may be asked to cough up more for Warrnambool Cheese & Butter.

A fortnight after knocking back a bid for GrainCorp, Treasurer Joe Hockey appears to have made another rash decision by allowing Yanzhou Coal Mining Company to maintain its stake in Yancoal Australia. With reports of the Foreign Investment Review Board telling Yanzhou such a move would not be possible just a month ago, it appears a fresh case of the political interest trumping the national interest.

Elsewhere, Saputo may be set for bad news from the Takeovers Panel, Fairfax Media makes a buy to grow its Domain business, Dexus Property Group raises the stakes in the fight for Commonwealth Property Office Fund and questions are again asked about the strength of the IPO market.

Yanzhou Coal Mining Company, Yancoal Australia, Joe Hockey, GrainCorp

Treasurer Joe Hockey has tried to redeem himself in the eyes of overseas investors and the business community with a decision to remove several foreign investment conditions in place on China’s state-owned Yanzhou Coal Mining Company. The deal paves the way for the group to claim full control of ASX-listed Yancoal Australia.

The saga goes back to 2009 when the Foreign Investment Review Board and then assistant treasurer Nick Sherry imposed conditions on Yanzhou’s takeover of Feliz Resources – a company renamed Yancoal by the Chinese group. Among these conditions were requirements for the listing of Yancoal and a reduction in Yanzhou’s stake in the firm to 70 per cent by the end of 2012.

The December 31, 2012 deadline was pushed back twelve months after Yanzhou acquired Gloucester Coal last year.

Now the deadline doesn’t exist at all after Hockey said weak coal market conditions meant it was only fair the group wasn’t forced to reduce its stake from 78 per cent to 70 per cent.

In truth, however, Yanzhou had plenty of time to reduce its stake when conditions were better. For instance, it could have reduced its position by 8 per cent at the start of the year when Yancoal’s share price was 30 per cent above where it is now. It didn’t, and instead Yanzhou has reportedly been lobbying consistently throughout the year to have restrictions relaxed.

According to Bloomberg, this led the FIRB to inform Yanzhou last month that it would not bend on its request for a sell down of its stake before the end of the year.

The Yanzhou decision follows hot on the heels of the rejection of a takeover bid for control of grains handler GrainCorp by Archer Daniels Midland and it seems that the government, stung by criticism of that rejection, has reacted by clearing obstacles in the next big foreign investment decision it needed to rule on.

Add this to the seemingly rushed decision to give approval for Saputo to purchase Warrnambool Cheese and Butter and the Abbott government’s handling of foreign investment can be considered to be perplexing, at best. That’s not to say the Saputo decision was wrong, merely that its timing was inconsistent with other decisions.

The big question is, how much is political interest interfering with the national interest?

It appears Hockey, by trumping previous guidelines set down by the Foreign Investment Review Board, has damaged the gatekeeper’s credibility. Foreign companies will look at the decision and conclude that FIRB conditions are more guidelines than requirements.

With the overhang of an imminent 8 per cent sell-off removed, Yancoal shares closed 10 per cent higher yesterday.

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

The Takeovers Panel is expected to request Canadian dairy group Saputo raise its $9.20 a share bid for Warrnambool Cheese and Butter to $9.56 a share in coming days.

The rumoured response follows claims from rival suitors Bega Cheese and Murray Goulburn that Saputo’s latest offer, which was declared to be improved and simplified, misled shareholders.

Bega and Murray Goulburn argued it was misleading given the new $9.20 a share bid did not go as high as its previous bid, which had been touted as $9 a share plus the possibility for an extra 56 cents a share in franking credits.

And it seems the Takeovers Panel agrees.

Meanwhile, Bega has extended the deadline for acceptances of its takeover proposal for WCB for the second time. The minnow in the three-way fight will now take acceptances until December 20.

DorsaVi Ltd, Cover-More Group, IPO market

Travel insurer Cover-More Group will list on the Australian Securities Exchange on December 23 after its lead advisors, UBS and Macquarie Group, raised $521.2 million through a bookbuild that closed yesterday.

The raising makes it the third largest Australian IPO of the year, only trailing Nine Entertainment and Pact Group.

Majority owner of Cover-More, Crescent Capital Partners, has sold down its stake from 82 per cent to 13 per cent in the process.

Meanwhile, movement technology company dorsaVi Ltd finished its first trading day flat after gaining as much as 7.5 per cent early and then losing as much as 16 per cent. It was a rollercoaster debut that failed to quell worries that IPO fatigue may have set in.

Given the strong pipeline of floats next year, bankers and advisers will be watching the debuts of Pact Group and Cover-More later this month rather nervously. If those two fail to set the market alight then the strong pipeline might become a lot more modest.

Fairfax Media

Fairfax Media has put some of the proceeds from its sale of the Stayz online accommodation website to use, purchasing property data and mapping provider Property Data Solutions for $30 million.

The media group will combine it with its existing property data business, Australian Property Monitors, with the deal seeing Fairfax gain a stronger presence in Queensland and Western Australia.

The company’s chief executive, Greg Hywood, said it was the latest example of investment in the Domain business, one of its rare outlets of growth in recent times.

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