DataRoom AM: GrainCorp growing pains

Coalition tensions over the GrainCorp takeover intensify, while Saputo’s on the front foot (for now) in the race for WCB.

A bubbling rumour that Prime Minister Tony Abbott could push the Treasurer towards opposing Archer Daniels Midland’s bid for GrainCorp has investors worried. If the speculation proves accurate, however, the prime minister and his government have their own problems – not least of which is the “open for business” tagline that would be shown up as a rather empty slogan.

Elsewhere, the fight for Warrnambool Cheese and Butter takes another turn, another Australian dairy group gets the attention of overseas suitors, takes off on its ASX debut, a float of Link Market Services looks likely and the sale of Queensland Motorways appears set to reap a big payday for its owner.

GrainCorp, Archer Daniels Midland

A growing expectation that Tony Abbott could step in and block Archer Daniels Midland’s buyout of GrainCorp had investors edgy on Friday, sending shares in the local group down 4 per cent. The downward move leaves the grain handler’s shares priced with a significant risk premium, though they are still ripe for a significant fall should the takeover not proceed.

It remains unclear how much can be read into the rumours, reported by The West Australian, but Abbott would be trekking a dangerous road should he force ADM to retreat.

Part of it relates to government’s “open for business” tag-line, but it’s more than that. The main argument here is that ADM will exert undue pressure on growers. The problem with that theory is twofold.

Firstly, the Australian Competition and Consumer Commission – the independent watchdog – has said categorically the takeover won't detrimentally impact competition. The second point is that should ADM exert bullying tactics or even engage in collusion, it would be breaking the law. More to the point, the company has little to gain by blocking access for growers to its supply chain.

The argument falls flat as soon as people say the takeover is “unnecessary” – which is irrelevant – or that we need a national strategy on foreign investment in agribusiness. The latter is likely true given Australia has, to a degree, fumbled an amazing opportunity, but you can’t block ADM on those grounds.

Indeed, you can’t have free and open markets only when it suits the Nationals.

It essentially comes down to three questions:

Does the government trust the ACCC? Does the government have faith in Australian competition law? Does the government believe in free markets?

If the answer is ‘no’ to any of the above, then there’s a wider issue. If the answer is ‘yes’ to all the above, then the deal simply must be passed.

Crucially, the notion that Abbott is interfering is not a good look as this is the Treasurer’s decision alone.

According to The Australian, the prime minister has denied he tried to exert pressure on Joe Hockey, but it’s clear both are in a tight spot. They are squeezed between traditional Liberals, who would find the notion of blocking the bid incomprehensible, and the Nats, who are steadfast against it.

We wait patiently until December 17 when the final decision is due to be made. In the meantime, we can enjoy another Senate inquiry, which hopefully provides something more valuable to the debate than its request a couple of months ago for an independent review of the ACCC’s findings.

Warrnambool Cheese and Butter, Saputo, Bega Cheese, Murray Goulburn, Parmalat, Harvey Fresh

The tit-for-tat week in the fight for control of Warrnambool Cheese and Butter Factory Holdings ended in a win for Saputo, which had earlier started the week off on the front foot by receiving Foreign Investment Review Board approval for its proposed takeover. Counter-bids were then forthcoming from Murray Goulburn Co-operative and Bega Cheese, but Saputo followed with a revised bid of its own on Friday that, on the surface, is the best deal for shareholders.

The unconditional $9-a-share plus special dividends offer has again seen Saputo receive the approval of the WCB board, but there remains an expectation Murray Goulburn will revise its $9-a-share bid shortly on the back of comments from its boss Gary Helou.

Meanwhile, the smallest suitor, Bega Cheese, declared its latest bid was “final” but still retains hope it’s in with a chance. With Bega’s shares surging almost 7 per cent on Friday, its offer is now above that of Saputo’s (without including special dividends), and while the group is a long-shot to wrest control, it is still set for a nice payday either way given its 18 per cent stake in WCB.

The way things are tracking, however, it could all end in a stalemate, with neither Saputo, Murray Goulburn or Bega getting a majority stake.

While all the focus has been on WCB, Italian dairy giant Parmalat is quietly stalking Western Australian-based Harvey Fresh, according to the Australian Financial Review. It is not alone in its admiration of the processor of a third of WA’s fresh milk, with several Asian buyers also believed to be in the mix.

Parmalat, which owns the Pauls, Vaalia and Oak brands in Australia, is reportedly “well advanced” in discussions – though a $100 million to $150 million deal is not likely to be completed this month.

IPO market,, Nine Entertainment

If you weren’t sure that the IPO market had reached frenzied status, then Friday’s action should have made you a believer. We warned readers last week that the activity around Friday’s listing of was going to be intense but even the most bullish would have been surprised by the $2.60 peak the company reached in early trade.

The buzz settled a little as the day wore on, but the lucky few who were able to get hold of the 50-cent shares up for grabs in the bookbuild would have still been delighted with the closing price of $1.60, a remarkable 220 per cent gain on the listing price.

As we discussed on Friday, the amount of press for such a small IPO, coupled with the limited amount of stock on offer and improving market conditions were always going to lead to a surge in price. However, turning a $218 million company into a $700 million company appeared a little optimistic on the first day of trade.

Freelancer may be a great business, but a valuation that high at this stage of its life is pricing in a lot of its potential. Still, the Matt Barrie-led company should get a substantial boost in traffic and interest given all the column inches it has received.

Meanwhile, the high-profile float of Nine Entertainment is edging closer, with the retail offer closing over the weekend. According to the AFR, mum and dad investors will account for just 15 per cent of the available stock thanks to robust offshore demand.

Again, get ready for another float with a strong first trading day, with the limited offering to retail investors and strong institutional interest likely to ensure there’s plenty of demand as soon as it hits the boards.

Queensland Investment Corporation, Queensland Motorways

Queensland Investment Corporation may have already fielded significant offers for its subsidiary Queensland Motorways.

The AFR reports that the group has recently received unsolicited bids as high as $7 billion. Indeed, these lofty offers, comfortably above the $5 billion valuation ascribed by the media when rumours of a sale surfaced, allegedly led the group to pursue a divestment in the first place.

If true, it seems unlikely that the Queensland government-backed QIC will bother pursuing a float.

QIC confirmed on Friday that it had hired UBS and Macquarie Capital to advise on the sale (or possible IPO), with the sales process expected to begin early next year.

Pacific Equity Partners, Link Market Services, ASX Ltd, Goldman Sachs, Macquarie Group

Pacific Equity Partners has offloaded a 25 per cent stake in Link Administration Holdings, the owner of Link Market Services, to Macquarie Group and Intermediate Capital Group for around $200 million, according to The Wall Street Journal.

The share registry group was acquired by PEP from the ASX in 2005 for $132 million and, after making several acquisitions, was rumoured to be chased by that same seller last year, with a price tag of around $1.4 billion mooted. However, nothing eventuated during a process where Goldman Sachs actively sought a strategic partner for Link on behalf of PEP.

Given last year’s $1.4 billion rumour, the purchase, which values the group at around $800 million, appears a shrewd one by Macquarie and Intermediate Capital.

The deal is considered a precursor to a 2014 float and it would not surprise for the group to list with a market cap of over $1 billion given the current market strength.

Wrapping up

Qantas Airways boss Alan Joyce has sent a letter to the prime minister that calls for the government to step in and halt Virgin Australia’s latest $350 million capital raising. Joyce argues it is the latest move for foreign airlines to subsidise Virgin in order to weaken Qantas.

In the seafood sector, Kidder Williams has been hired to fund a buyer for Victoria’s largest seafood distributor – Clamms Seafood – as well as the country’s largest abalone farm – Jade Tiger Abalone – in separate deals.

In finance, Westpac Banking Corp has started a $400 million, 10-year, fixed-rate bond issuance, with pricing expected on November 15 ahead of issuance six days later, the AFR reports.

Meanwhile, New Zealand packaging giant Rank Group has re-priced a $2.3 billion term loan in the latest example of companies looking to take advantage of the liquid market conditions in the US.

Finally, the iconic Forbes magazine has been put up for auction. Forbes Media, controlled by Steve Forbes, is looking to achieve a price of around $US400 million ($426.8 million).

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