DataRoom AM: Milking M&A

The battle for Warnnambool Cheese could foreground a year of M&A resurgence, while Vodafone and TPG seem most likely to make a play for AAPT.

As Bega Cheese gears up to deliver an improved takeover offer to Warrnambool Cheese and Butter, there is talk of a major revival in the M&A sector. So which companies could be next in the takeover queue? Meanwhile, Telecom New Zealand confirms reports it is shopping AAPT around, APN News & Media offloads the rest of its local billboard business and Woodside Petroleum receives some good news in Israel.

Bega Cheese, Warrnambool Cheese and Butter, Murray Goulburn, Lazard Ltd, M&A

Bega Cheese shareholders yesterday paved the way for the group to make a revised bid for Warrnambool Cheese and Butter, amending the company’s constitution to allow the issuance of more than 10 per cent of its stock.

Expect a new bid from Bega to be forthcoming in early November once it receives the viewpoint of the competition regulator. That approval, or otherwise, should be forthcoming by the end of the month, though the Australian Competition and Consumer Commission does tend to view deadlines as somewhat of a fluid concept.

Canadian dairy giant Saputo is also still lurking, with a revised offer thought to be forthcoming in the next few weeks as well.

For now, all parties are taking a breather, as are investors, who largely left WCB stock unchanged yesterday. It was a rare day of calm in what has been the most hotly contested takeover for some time.

The fight for WCB might prove a precursor to a big year of M&A in 2014, according to Lazard Ltd, which is acting on behalf of leading WCB bidder Murray Goulburn.

“For the first time in three years I’m prepared to say M&A is coming back,” Garren Cronin, a Lazard managing director, told Business Spectator.

“Next year we’ll see more big-ticket M&A.”

The recent uptick in the Australian dollar, coupled with the rising valuations of ASX-listed companies, makes this column a little sceptical of a flurry of activity in the near term, but a dollar dip would make things very interesting.

If that comes there are a number of likely candidates, with the perennial names up for discussion including: Leighton Holdings, Echo Entertainment, Goodman Fielder, Coca-Cola Amatil, Treasury Wine Estates, Santos Ltd, ASX Ltd, Newcrest Mining, Virgin Australia, Oz Minerals, Whitehaven Coal, Incitec Pivot, Nufarm and Woodside Petroleum.

That’s quite a list of well-known companies that are time and time again viewed as takeover targets for various reasons. Some have rebuffed approaches; some have not been approached, but expect a couple from this list to see more action in the next year or two.

Investors should also anticipate Bega Cheese receiving attention from suitors, assuming it fails in its attempts to grab control of WCB, while Equity Trustees is widely considered to be gobbled up by soon-to-be major shareholder IOOF Holdings at some point.

Telecom New Zealand, AAPT, Vodafone Australia, TPG

Telecom New Zealand has confirmed it is mulling a sale of Australian telecommunications group AAPT.

“In response to media reports, Telecom said ... it is considering a possible sale of AAPT,” the group told shareholders. “No decision has been made whether or not to proceed.”

The price it can expect varies markedly depending on who you speak to, but it seems $250 million to as much as $400 million could be anticipated.

Telecom NZ would not be drawn on its intentions regarding its 10 per cent stake in Hutchison Telecom Australia. HTA owns half of Vodafone Australia, meaning Telecom NZ holds 5 per cent in that firm. Should it sell AAPT, the HTA stake would be the company’s sole remaining interest in Australia.

Vodafone Australia, meanwhile, has flagged its interest in AAPT, specifically its fibre optic cables. At this stage, TPG and Vodafone appear the two parties most likely to make a play for AAPT, but given the previous struggles in offloading the business, a deal is far from a foregone conclusion.

Vodafone Australia’s boss Bill Morrow also said 50 per cent shareholder Vodafone Group was unlikely to buy out the other 50 per cent from Hutchison Telecom Australia, despite being flush with cash following its sale of a major stake in Verizon Wireless.

Woodside Petroleum

Woodside Petroleum’s mammoth $1.25 billion play to enter the Israeli oil and gas sector has received a boost, with a High Court ruling offering the potential for gas exports.

Woodside had hoped to tie up a 30 per cent stake in the Leviathan gas field in February but took the patient route while waiting for news on the country’s gas export policy.

According to Israel business daily Globes, the development will restart negotiations on the deal, though Woodside will need to improve its offer. This, the paper suggests, is due to the larger reserves now estimated at Leviathan and the prospect of a Turkish pipeline that reduces the need for new LNG plants and consequently cuts the need for Woodside’s expertise in such projects.

The request for a higher price won’t “wreck the deal”, according to Globes.

APN News & Media, Quadrant Private Equity

APN News & Media is planning to offload its remaining stake in APN Outdoor for $69 million to Quadrant Private Equity.

The two groups entered into a joint venture in 2012, with Quadrant gaining a 50 per cent stake for $190 million, although that included $110 million of debt. At that time the billboard business had an enterprise value of $272 million.

APN News & Media said the deal was done to streamline the business and “provide increased flexibility around its existing assets as opportunities arise”. The latter is management speak for ‘we wanted a bit more cash to focus on building our other businesses’.

As such, it is no surprise rumours are surfacing of action in other parts of the APN business. According to the Australian Financial Review, APN could use the funds to take full control of Australian Radio Network, which includes Mix, WSFM and Gold FM. The paper suggests talks have been held with its JV partner, Clear Channel Communications, regarding a possible buyout, although they are in the preliminary stages.

The market responded positively to the news yesterday, sending APN shares 8 per cent higher, with the stock closing at a 52-week high.

Wrapping up

Dexus Property Group and Canada’s Pension Plan Investment Board could up their offer for the Commonwealth Property Office Fund as early as this week, according to the AFR. But the upper end of the range is likely to be below the $1.20s, which many expect may be needed to get a deal done, the paper says.

In IPO news, Staples and Agricultural Group Beef Investment, known as Stag Beef, will pursue a December 23 listing on the ASX. The company hopes to raise $70 million, according to the Wall Street Journal. Meanwhile, DIY superannuation software company Super IP will move its listing forward a year from 2016 to 2015, according to the AFR.

In mining, Sundance Resources has announced plans to raise $40 million through the issue of convertible notes to Noble Group and an investor consortium.

Elsewhere, Macquarie Capital and GE are pursuing a new infrastructure funding alliance. The global deal was singed in Sydney yesterday and brings together GE’s technology with Macquarie’s access to funding.

Finally, Transfield Services has offloaded its 50 per cent ownership of Transfield Worley New Zealand to partner Worley Parsons for $30 million citing a desire to focus its attentions on Australia.

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