DataRoom AM: Netting AAPT

iiNet is rumoured to be in the race for AAPT, while the big week of IPOs stumbles with Industria REIT.

Speculation is swirling around an imminent sale of telecommunications group AAPT, with TPG Telecom considered the frontrunner despite a few fresh faces popping their heads in for a look. A deal is hoped to be sealed before Christmas, possibly spelling an end to the on-again, off-again sales process that has been going on for several years.

Meanwhile, the IPO market receives a minor blow ahead of Dick Smith Holdings’ listing today, Virgin Australia gets the all clear for its latest capital raising, Qantas Airways is the subject of rumours over asset spin-offs, Rio Tinto may be clearing the decks for an aluminum sale and the race for Warrnambool Cheese and Butter remains up in the air.

AAPT, Telecom New Zealand, iiNet, TPG Telecom

The almost-forgotten auction of telecommunications group AAPT has re-emerged as a talking point with a third likely bidder entering the fray.

While caution must be exercised given that AAPT was reported to be close to a sale on several occasions in the past, The Australian is reporting that iiNet is now interested in the Telecom New Zealand-owned group.

When AAPT was put on the block in October, TPG Telecom and Vodafone Australia were considered the most likely suitors. iiNet’s $60 million acquisition of Adam Internet earlier in the year was seen a dampener on its ability to match other offers. But according to the newspaper’s report iiNet has reconsidered its options and is keen not to cede ground to rival TPG.

Vodafone has been all but ruled out of the running, but Ontario Teachers Pension Plan – one of Canada’s largest pension funds – is also reportedly in the race, along with M2 Telecommunications.

AAPT, which was acquired for $2 billion by Telecom NZ, is believed likely to attract bids of around $400 million, roughly the level at which a deal between TPG and Telecom NZ broke down in 2010. In 2008 the business was almost sold to Pacnet for $420 million, but again a deal could not be agreed.

The Australian suggests TPG is desperate to secure the buy having missed out on Leighton Holdings’ telecommunications businesses earlier this year as well as coming up short when iiNet outbid it for AAPT’s consumer arm, which Telecom NZ offloaded for $60 million in 2010.

It is believed TPG is the frontrunner at this point with a buyer reportedly being sought before Christmas.

Given the many false starts, we will believe it when we see it, but one suspects Telecom NZ is finally ready to rid itself of the memories of what has turned out to be a very expensive purchase.

IPO market, Industria REIT, Nine Entertainment, Dick Smith Holdings, Veda

The strong IPO market has received a blow with the less-than-impressive debut of APN Property Group’s Industria REIT on the ASX yesterday. Securities in the group slumped more than 6 per cent from the listing price of $2, a far cry from the success stories of Freelancer.com, OzForex and Virtus Health in recent months.

Still, Industria is not a high-profile float, with that badge best left to upcoming IPOs of Nine Entertainment, Dick Smith Holdings and Pact Group.

Dick Smith is expected to receive a warm welcome when it goes on-market today, while Nine Entertainment is finalising its bookbuild ahead of plans to hit the boards on Friday.

Nine, which will be the biggest IPO of the year, has seen strong demand for its stock from fund managers at the lower end of its indicative price range, according to The Australian. It will likely see the company list with a price of around $2.15, which is comfortably below the upper level of $2.35.

UBS, Macquarie Group, Morgan Stanley and Commonwealth Bank of Australia are acting as joint lead managers of the float.

In the meantime, all eyes are on Dick Smith, with today’s news of improved retail forecasts perfectly timed for the group’s ASX listing.

Virgin Australia, Qantas Airways

Virgin Australia has received the green light from the Takeovers Panel for its latest capital raising.

The airline is looking to raise $350 million with its three major shareholders – Air New Zealand, Singapore Airlines and Etihad Airways – underwriting the offer.

The deal was threatened by the Australian Shareholders Association which filed a complaint to the Takeovers Panel over what it viewed as the airline going to “extraordinary lengths” for the purpose of its main shareholders gaining further control of the company.

The raising was also met with derision from rival Qantas Airways, which complained to the government that it was essentially a foreign takeover by stealth. The war of words that has broken out since has seen Virgin go as far as considering legal action, though few expect it to prove anything more than an idle threat.

Virgin shares closed up 3 per cent on the news.

Meanwhile, with Qantas shunning the prospect of an imminent capital raising, rumours are spreading as to how it will boost liquidity and avoid a credit downgrade. According to the AFR, the most likely options would be a spin-off of either its frequent flyer division or Jetstar Asia.

Analysts have regularly argued for both options but it’s unlikely either will be pursued. The first one is awkward, while the second would throw away a rare glimmer of light in the airline’s operations.

Rio Tinto

Rio Tinto continues to move towards a long-awaited exit from the aluminium sector, according to reports.

Like Telecom New Zealand, Rio Tinto has a story of woe to tell from a pre-GFC purchase that went awry. In the miner’s case it is the $US38.1 billion ($41.73 billion) acquisition of Alcan at the peak of the aluminium price cycle.

It is now thought the group’s aluminium division could be worth just a third of that number as the sector confronts several headwinds.

In August, Rio Tinto raised expectations of a divestment with a decision to reintegrate its Pacific Aluminium business with its Alcan operations.

According to the Sydney Morning Herald, the focus is now on cost cutting ahead of a likely spin-off down the road, which many analysts have called for.

Rio Tinto, like fellow big miners BHP Billiton and Brazil’s Vale, has been pursuing a cost-cutting strategy which includes the divestment of non-core assets.

The latest cost-cutting exercise was a decision to shut the loss-making Gove alumina refinery over the past week.

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

The takeover saga rolls on at Warrnambool Cheese and Butter, with Bega Cheese now the only ‘live’ bidder as Saputo is forced to put acceptances on hold and Murray Goulburn Co-operative waits on regulatory clearance.

The point is not lost on the smallest player in the fight: “Interim orders prevent Saputo Dairy Australia Ltd processing any acceptances received under its bid for Warrnambool,” Bega noted in an ASX statement yesterday.

“Bega Cheese’s offer is unconditional and remains open for acceptance by Warrnambool shareholders.”

As it stands, Bega’s offer is due to close on December 12 and while it has the front seat almost by default right now, there appears little chance it will gain a majority stake by then.

Indeed, the likelihood of any deal being sewn up by Christmas is a long shot.

Wrapping up

Archer Daniels Midland’s voting power in GrainCorp has slipped back from 27.98 per cent to 19.85 per cent as acceptances for its failed takeover have been returned. It is not known what ADM’s intentions are with its stock now the takeover has been blocked, though as it stands, it is sitting on a rather substantial loss.

The Queensland government confirmed yesterday it had sold a significant stake in Aurizon Holdings. Following the offload of stock worth $350 million, the state government now has less than a 5 per cent stake in the rail freight operator it formerly owned. The Monday night deal was made at a price of $4.71, which was a premium to Monday’s close but a discount on yesterday’s close after the stock rose 2 per cent on the news.

Perpetual has received approval from the New South Wales Supreme Court for its takeover of The Trust Company. The news paves the way for the acquisition to be completed by December 18 after the deal received Trust shareholder approval last week. Perpetual beat out IOOF Holdings and Equity Trustees to gain control of the financial services group.