DataRoom AM: Murray Goulburn's grievance

Two regulatory wrongs don’t make a right for Gary Helou, while Telstra makes its first foray into Indonesia.

There is plenty of discussion over the regulatory process that helped Canadian firm Saputo cruise to control of Warrnambool Cheese and Butter after a long and heated battle. But does the debate focus on the right issues? Failed bidder Murray Goulburn has at least one reason to feel aggrieved as it officially throws in the towel.

Elsewhere, Telstra Corporation makes its first move into Indonesia, there’s plenty of interest in the Australian operations of Investec Securities and the race for Macquarie Generation is done to three.

Murray Goulburn, Warrnambool Cheese and Butter, Lion Nathan, Saputo

Murray Goulburn has, as expected, given in to the inevitable and withdrawn its bid for Warrnambool Cheese and Butter.

It has also said it will sell its 17.7 per cent stake in WCB to Saputo in order to reap a profit of $51 million, before factoring in tax and costs. It likely spent a significant amount on its bid so the profit isn’t quite as good as it sounds, but it will still bankroll a significant push against its new competition.

"These cash proceeds will support our plans to reinvest in our business and to grow market share in Australia and expanding internationally, further assisting us to deliver our goal of increasing the underlying farmgate returns," Murray Goulburn’s managing director Gary Helou told shareholders.

Helou expressed dismay at the fact his company was fighting Saputo with one hand behind its back due to regulatory concerns. Its process to receive approval from the Australian Competition Tribunal was still not complete when Saputo reached a majority stake in WCB, while the Canadian firm waited just weeks until receiving the all-clear from the Foreign Investment Review Board.

Such sentiments have ensured plenty of commentary about the approvals process in Australia.

However, what is largely lost in all this talk is that Murray Goulburn purposefully dodged the typical process for regulatory approval – a request for consent from the Australian Competition and Consumer Commission.

Rival suitor Bega Cheese, for instance, went via the ACCC route and was the first bidder to receive regulatory clearance. It dropped out of the race in December.

Murray opted against the ACCC avenue as a 2010 bid for WCB was not warmly received by the competition watchdog. Instead, it chose to seek consent from the Australian Competition Tribunal.

The question is: was the ACCC wrong to block Murray’s bid for WCB a few years ago? Are we essentially ‘selling the farm’ by not allowing Australian firms to gain scale?

There is no right answer to either question, though they are worthy of plenty more public discussion.

Helou does have a point on the approval for Saputo, however, with the lightning quick response from the FIRB almost certainly an attempt from the federal government to deflect criticism ahead of its move to block a takeover bid for GrainCorp.

Sadly, as Murray and GrainCorp are only too aware, two wrongs don’t make a right.

While everyone interested in regulation ponders those issues, Saputo has quickly moved beyond a 75 per cent share in WCB. This pushes its offer up to $9.40 a share, from $9.20, and shareholders may even get to $9.60 a share before the end of next week.

There are reports that Kirin Holdings subsidiary Lion Nathan has made plans to rid itself of its 10.2 per cent stake in WCB, meaning Saputo will be within touching distance of 90 per cent acceptances and a further lift in its offer price.

Telstra Corporation

Telstra Corporation has made its first foray into Indonesia as it looks to expand its Asian presence.

Australia’s largest telco has agreed to a joint venture deal with Indonesia’s biggest telecommunications group, Telkom Indonesia. The agreement will see the two collaborate on network applications and services, with the revenue opportunity for the JV seen at a couple of billion dollars over the next six years.

The deal comes amid rising tensions between Indonesia and Australia, though Telstra seems unperturbed by the sovereign risk.

"We are not concerned about that," Telstra's group executive, global enterprise and services, Brendon Riley, told The Australian. "There are always risks but we are looking to create new capabilities, we are looking to bring our IP and our experience to work with Telkom. I think that can only be good for the industry, for Telkom, us and the customers in Indonesia.”

It is the second cloud computing deal the telco has made in the past week after it completed a buyout of Melbourne-based O2 Networks on Monday. Telstra has said it is keen to focus on cloud opportunities while boosting its Asian presence.

In the Telkom deal it has done both, albeit not on a grand scale.

Investec Securities

A sale of Investec Securities’ loan book and professional finance division in Australia has drawn attention from Macquarie Group, a National Australia Bank subsidiary, the Bank of Queensland and Bendigo and Adelaide Bank ahead of offers being requested early next month, according to the Australian Financial Review.

But the interested onlookers don’t end there, with Pepper Australia and GE Capital also seen as possible suitors.

The South African-based Investec has implemented an Australia-wide restructure with the company shutting its resources arm in August last year.

The report suggested Investec was hopeful of finding a buyer for the loan book and professional finance operations before the end of March.

Macquarie Generation

The sale of the nation’s largest power generator, Macquarie Generation, is nearing an end.

The race for Macquarie’s Liddell and Bayswater power stations is seen to be down to three ahead of a February 5 deadline for final bids.

As has been previously mentioned, AGL Energy and ERM Power represent two of the suitors, though the identity of the third remains a mystery as China’s Shenhua Group has reportedly exited the auction.

All bidders must be a little worried by the weaker-than-expected demand for electricity over recent years, which will ensure the NSW government struggles to receive the cash it is hoping for. Perhaps it could even cancel the sale.

It is not clear what the government is hoping to receive from the auction, but the $2 billion book value is, at best, a long shot.

Wrapping up

A block trade in Goodman Group stock is seen to be imminent as Goldman Sachs and Morgan Stanley test broker interest in Chinese Investment Corporation’s 9.8 per cent stake, according to The Australian. The shareholding is worth around $800 million, with the two investment banks looking to gauge interest before a block trade is pursued to ensure they aren’t left with too much stock on their hands.

Elsewhere, Whitehaven Coal is seen ready to pursue a repricing of a $1.2 billion debt facility that is held by an ANZ Banking Group-led consortium. The company is looking to the United States for the deal while interest rates remain depressed by historical standards.

Finally, UGL Limited has signed a $30 million managed services contract with telco Optus. The five-year deal will see Optus provide UGL’s ICT and mobility services in Australian and Asia.

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