DataRoom AM: Merger hype

Commentators remain enthusiastic about global M&A prospects despite emerging market risks, while Echo Entertainment ramps up its war chest.

There is growing optimism the M&A sector is about to burst to life as business confidence rises. But there are plenty of reasons to be sceptical on prospects for a boom, not least of which is that we hear the same forecasts every year.

Elsewhere, one big shareholder holds out on Saputo’s Warrnambool Cheese and Butter offer, Echo Entertainment Group intensifies its focus on Sydney and Brisbane, Transpacific’s New Zealand operations draw plenty of attention, UGL Limited’s real estate business may be in the sights of private equity and a hotel operator joins the IPO queue.

M&A

New research from content management group Intralinks indicates global M&A could be set for a strong 2014 after years of muted activity.

Intralinks’ early stage global M&A activity tool is up 17 per cent year-on-year, indicating the coming six months should be much busier than the corresponding period last year. Media reports boast that this equates to something of a boom. As much as we would like to agree, there’s little to suggest we are on the verge of an M&A explosion.

Firstly, the rising interest comes off a very low base. Essentially the market has moved from ‘almost dead’ up to ‘quiet’.

We are far from boom-time levels and getting there will take a much stronger lift in business confidence. It should also be noted that we have read the same thing every year for at least the past three, meaning the data should be taken with a grain of salt.

Secondly, valuations are prohibitive. For takeover activity to be stimulated, it might require stocks holding steady while earnings rise.

Finally, the current emerging market fears threaten to be more than a blip.

What is happening in Argentina, Russia, Turkey and India is worrying. If China fails to reignite and France continues to tread water, then the global recovery will look more fragile than ever.

If there is much more turbulence in the next month or two, then cashed-up companies will likely take the safe option of reinvesting in their own stock or paying off debts rather than pursuing acquisitions.

For Australia, one upside is the falling dollar, which could stimulate offshore interest in local firms.

Echo Entertainment Group

As forecast last week, Echo Entertainment Group has divested its Townsville casino, securing a $70 million deal for its smallest property with Australian-based Colonial Leisure Group.

The sale of Jupiters Townsville will provide a pre-tax profit of around $8 million to Echo and add more cash to its war chest as it looks to protect its Brisbane and Sydney casinos from a James Packer-led invasion.

Currently the Queensland government is assessing the option of a new casino to rival Echo’s Treasury Brisbane property, while Packer’s Crown Resorts has received approval to open a casino in Sydney to battle Echo’s Star Casino.

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

Murray Goulburn has confirmed a sale of its 17.7 per cent stake in Warrnambool Cheese and Butter to Canada’s Saputo.

The expected move came on Friday as MG boosted Saputo’s holdings to over 75 per cent and reaped a profit of around $50 million in the process. Saputo’s offer has been raised to $9.40 a share after the 75 per cent trigger was hit, and it could yet climb to $9.60 a share if it can reach 90 per cent control.

That, however, will rely on Kirin Holdings selling its 10.2 per cent stake, but for now the Japanese firm has no intentions to exit as it attempts to protect a supply deal between WCB and its subsidiary Lion Nathan.

Transpacific Industries

The New Zealand operations of Transpacific Industries have drawn the interest of a Chinese bidder, according to The Australian.

The ASX-listed group put its New Zealand arm up for grabs in October amid plans to focus more heavily on Australian opportunities.

It is still not clear whether Transpacific will chase a trade sale or demerger, though Chinese private equity firm Beijing Capital is seen as a frontrunner should it choose the former.

The state-owned firm will likely face competition from NZ-based Infratil and Japanese-owned Orix should a sale be the preferred option. The Carlyle Group and Blackstone have also been rumoured to be interested parties.

A deal is widely tipped to be in the range of $800 million to $950 million.

M&L Hospitality, IPO market

New faces continue to be linked to ASX listings this year, with the latest being hotel operator M&L Hospitality.

So far this year there have been plenty of rumours about new IPOs but little in the way of action.

The latest chatter surrounds Singapore-owned M&L, which has instructed investment bank CIMB to gauge investor interest in an ASX float, according to The Australian.

The owner of Travelodge Docklands, the Swissotel in Sydney and the Harbour City’s Four Points by Sheraton is also reportedly mulling a listing in Singapore.

UGL Limited

UGL Limited’s real estate business, DTZ, could soon be snapped up by private equity.

According to The Australian, the $1.3 billion division is in the sights of The Carlyle Group, TPG and Pacific Equity Partners, while Blackstone and Warburg Pincus have also reportedly shown interest.

The news comes after UGL announced plans for a demerger last year, which faced intense criticism from shareholders and brokers.

While no formal auction is believed to be underway, the degree of interest indicates a sale may now be preferred to a demerger.

AT&T, Vodafone Group

For months, speculation has swirled about a possible $115 billion takeover of UK-based telco Vodafone Group being initiated by US-based giant AT&T. Last night, however, that speculation was knocked on the head as AT&T said it had no plans to make a bid.

The deal would have amounted to one of the biggest takeovers ever, but Vodafone’s rising share price and its presence in troubled emerging markets has put any deal on ice for now. As a result, the lack of action marries with the M&A risks highlighted in the first section of this column today.

A possible bid was also hurt by the US spying controversy, which has stirred anger and distrust in Europe.