DataRoom AM: Insurance transfer?

Several analysts have spent years calling for Wesfarmers to divest some of its assets and it appears the conglomerate may finally be coming to the party. Speculation is swirling that a multi-billion dollar deal is brewing regarding an offload of its insurance business. Given the recent developments in this division, however, the news comes as a bit of a surprise.

Elsewhere, IPO action continues to balloon, investors make some large bets regarding the WCB takeover and Transpacific Industries seeks a buyer for its New Zealand business.

Wesfarmers, SPC Ardmona

Wesfarmers may finally be making good on the plans analysts have long tried to lay for it: divesting non-core sections of the conglomerate.

According to The Australian Financial Review, the Western Australia-based group is nearing a sale of its insurance business to Zurich Insurance Group. A takeover would combine the fifth and sixth largest insurance companies in the country.

The price is expected to be around $2 billion, though if you apply the price to earnings ratios of the nation's largest insurance groups there is cause for Wesfarmers to chase a figure closer to $2.5 billion.

If the speculation proves accurate it would prove a strange turn of events after Wesfarmers had become increasingly bullish about the division’s prospects.

The sector recorded a profit of $205 million last financial year, markedly higher than the Christchurch earthquake-affected $5 million the year prior. This came on the back of the group gaining some traction via leveraging of its Coles supermarket chain to push its insurance business to the public.

It may be possible Wesfarmers pursues a joint venture arrangement with Zurich whereby it would receive a cut of sales made through its retail stores as this growth avenue appears useful for the business and one any buyer wouldn’t want to cut off.

The division’s managing director Anthony Gianotti did, however, say that there were no plans to sell any part of the Wesfarmers insurance business as late as August this year.

It appears those plans may have been quite fluid.

Meanwhile, Wesfarmers' supermarket subsidiary Coles has followed Woolworths into a private label deal with SPC Ardmona. Both supermarkets will now ensure their canned fruit is Australian grown, a move that cynics will argue is meant to help appease increasingly worried regulators and policymakers who are looking into the power of the two retailers.

The value of the deal was not disclosed.

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

Investors made their minds up as to the big winner of Kirin Holdings’ intervention into the fight for Warrnambool Cheese and Butter and it wasn’t the latter. Instead, Bega Cheese appears the big beneficiary of the late play from Kirin to build a 10 per cent strategic stake.

While WCB shares slumped 5 per cent, Bega securities climbed by a similar amount.

The moves are a sign that, as we discussed yesterday, Saputo has lost its front seat position. Kirin now has plenty of skin in the game and gets to pick and choose which player it most wants to win the battle. At this point, it is unclear which company it is rooting for, but most analysts expect it to be a straight fight between Bega and Murray Goulburn. It is hard to say, however, whether the rise in Bega shares was a reaction to a greater likelihood it would win the day or, perhaps more likely, the view it will soon become a takeover target itself.

For Bega it appears a case of consume WCB or get swallowed up some time in the next couple of years.

Interestingly, the recent uptick in Bega shares sees its offer now value at $7.27, over a dollar higher than where it started over a month ago and not far off the $7.50 put forward by Murray Goulburn.

Transpacific Industries

Waste management firm Transpacific Industries has announced plans to divest its New Zealand business to allow it to better focus on its local operations.

The group has appointed Deutsche Bank to pursue a trade sale, with indicative bids due in December on the $900 million business, according to The Wall Street Journal.

Investors welcomed the move, sending shares in the waste management business almost 5 per cent higher in Wednesday trade.

Wrapping up

Accounting and advisory firm PriceWaterhouseCoopers is set to acquire corporate consultancy group Booz & Co. The deal is due for a December vote from partners in Booz. The terms have not been disclosed.

In mining, Sirius Resources has entered a trading halt ahead of a capital raising. According to the AFR, the group will look to raise $85 million.

Finally, Macmahon Holdings has offloaded its 25 per cent stake in a Hong Kong rail project. The shareholding in the Express Rail Link project was sold to Leighton Asia for an undisclosed sum and leaves the group to focus entirely on its mining projects.