DataRoom AM: GrainCorp headache

Coalition tensions rise over ADM’s takeover bid for GrainCorp, while Bega mulls a sweetened offer for Warrnambool Cheese.

The Nationals are drawing a line in the sand over the GrainCorp takeover, leaving plenty of headaches for the Liberal section of the Coalition. After making it crystal clear they will fight to the end, the question now is: do the Nats really have a chance to stop it?

Elsewhere, Bega Cheese looks over its shoulder to see if it has moved from predator to prey, Macquarie Bank pleases investors with its Sydney Airport divestment and more IPOs come out of the woodwork. It’s now clear December is going to be a very busy month for the market.

GrainCorp, Archer Daniels Midland

GrainCorp suitor Archer Daniels Midland has again extended the bid deadline for its $3.4 billion offer. The second extension, this time until February 28 next year, comes amid rising tensions in the Coalition camp over approval for the deal.

It has long been known that the Nationals are keen to halt the takeover, but while its members were happy to go on the record with their displeasure while in opposition they have largely retreated to backroom discussions since the election.

That changed over the weekend with Nationals leader Warren Truss offering a firm rebuke of the plans on the ABC.

“There is no doubt that if this sale proceeds, international companies will control our ports and our handling facilities,” he said.

“And therefore, if we want to export grain to other parts of the world, grow our industry, that decision will ultimately be made in a foreign boardroom rather than in Australia.”

Truss believes the issue goes far beyond the agribusiness sector.

“If we lose our biggest agribusiness from our stock exchange, that weakens Sydney as a market and as an international financial market, and then opens questions about whether Australia is really going to be a major player and an international centre for commerce, for agriculture and for industry in the future,” he concluded.

Treasurer Joe Hockey, who Truss says is “well aware of the importance of the decision”, has slated December 17 as the date for a final decision and while the deal is expected to get the green light, it might be given only with a few conditions to help appease the Nationals.

It doesn’t take much for tension to evolve into a rift and while the GrainCorp deal may not be the catalyst, there are other decisions on the horizon that would be keeping Hockey and Prime Minister Tony Abbott awake at night. The most obvious is the potential takeover of Warrnambool Cheese and Butter by Saputo.

While the chances of that have diminished in the past week there is still the potential for Saputo to look for a knockout blow by making a bid for Bega Cheese as well.

A Bega and WCB takeover from a foreign entity would surely rile the Nats. However, on pure competition grounds it’s hard to knock back the deal, so it’s left to the catch-all of being in the national interest. No one would envy a Coalition treasurer making that call in this environment.

Bega Cheese, Warrnambool Cheese and Butter, Fonterra, Saputo, Murray Goulburn, Kirin Holdings

On Friday Warrnambool Cheese and Butter suitor Bega Cheese hit a record high on news New Zealand dairy giant Fonterra planned to procure a 10 per cent stake (it now has six per cent). It’s now up over 40 per cent since the takeover offer was announced and while Fonterra may be a friendly shareholder, Bega has launched an investigation of its share trading to assess whether there may be predators lurking, The Australian reports.

As we have mentioned in this column previously, Bega is very much in play should it fail to acquire WCB, though chairman Barry Irvin says the company is not considering such a prospect an option.

"We've consistently said that Bega is not for sale," he said, according to The Australian. "We think that there's plenty of value to be created within the group."

Nevertheless, takeover targets often have little say when a bid too good to refuse comes along and given the froth in the dairy sector right now, perhaps that isn’t far away.

Saputo would be the most obvious candidate, with a takeover of Bega bringing it closer to capturing its original target of WCB while also boosting scale in Australia. The only thing standing in the way will be the Foreign Investment Review Board and, as outlined above, a hostile Nationals party.

In the meantime, Bega’s board is meeting this week to discuss its WCB proposal. It may choose to raise its bid or make its offer unconditional. Either way, expect some news on the bid before the week’s out.

Macquarie Bank, Sydney Airport

Macquarie Bank has offloaded its position in Sydney Airport to the delight of investors and analysts alike. The Millionaires Factory will offer its $1.4 billion stake to its own shareholders, who will receive one Sydney Airport share for every one Macquarie share they own, in a dividend by another name.

Macquarie, with around 18 per cent, is the largest shareholder in Sydney Airport and has long mulled an appropriate exit. Rumours have swirled about Macquarie’s exit strategy ever since it unofficially put the asset on the block early last year, with the latest move officially putting to bed speculation it was trying to drum up interest in a takeover.

The deal still requires the approval of Macquarie shareholders, but that appears a sure bet.

BIS Industries, CBA Equities, Twitter, IPO market

BIS Industries, a supplier of logistics services to the mining sector, is set for a $300 million raising on the ASX in December, according to the AFR. Marketing on the $1.5 billion company is expected to begin today with private equity firm KKR keen to capitalise on the strong market, though it will likely retain a stake.

Meanwhile, CBA Equities is pursuing a listing of its own, seeking to raise $77 million in a float of its childcare services business Affinity Education, which runs 68 centres on the east coast. The group will list on December 11 with a market cap of around $100 million, The Australian Financial Review believes.

Affinity and BIS will be fighting with household names like Nine Entertainment and Dick Smith Electronics for attention in a suddenly frenzied marketplace.

Offshore, the Twitter IPO has plenty of buzz about it and will likely set the scene for the 2014 IPO market. It is the most anticipated since Facebook and market watchers will be keen for a strong showing in the knowledge Facebook’s initial struggles set the market back a considerable way.

Wrapping up

As Transpacific Industries looks to offload its $900 million New Zealand business, its largest shareholder is keen to do some selling of its own. Private equity firm Warburg Pincus has ditched its 33.9 per cent stake to fund managers, according to the AFR, receiving a price 6.7 per cent below Transpacific’s Friday close.

In resources, Downer EDI has won a $400 million contract from Bechtel for works on the Chevron Wheatstone LNG project. The downstream electrical works will begin in late 2014.

Meanwhile, Pura Vida Energy has offloaded a 52 per cent stake in a Moroccan offshore prospect to US miner Freeport-McMoRan Copper & Gold Inc for $US230 million, while Aurizon may be nearing a deal to receive port space at Port Headland in WA. According to the AFR, Aurizon would look to use the port space as a carrot to iron ore miners looking to proceed with the construction of a new rail line in the Pilbara.

Finally, APN News and Media has sold its New Zealand magazines business to Bauer Media Group for an undisclosed sum. It is now awaiting New Zealand Commerce Commission approval on the deal.

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