DataRoom AM: Oh Canada!

Saputo still has hurdles to jump in its bid for WCB, while Air New Zealand denies it has its eyes on Virgin.

Treasurer Joe Hockey has provided swift approval to Saputo’s bid for control of Warrnambool Cheese and Butter, but it still leaves the Canadian dairy firm with one major mountain to climb. It also poses a pertinent ‘open for business’ question to the Abbott government in light of the slow response on the GrainCorp takeover.

Meanwhile, Air New Zealand has dismissed rumours it is interested in taking Virgin Australia private, though that won’t put an end to the speculation. The rumours, however, appear to have a major flaw.

Elsewhere, Woodside Petroleum meets resistance to its bid for a position in a major gas field, more details emerge about the Dick Smith Electronics float and the Pact Group IPO moves forward.

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

Joe Hockey has made his first big foreign investment decision as treasurer, green lighting Saputo’s $8 a share bid for Warrnambool Cheese and Butter in conjunction with the Foreign Investment Review Board.

The quick-fire decision, announced yesterday, leaves only Murray Goulburn as a suitor with a regulatory question mark given Bega Cheese received ACCC approval almost a fortnight ago.

The move came as WCB released its target statement, formally recommending the Saputo offer to shareholders.

"We believe Saputo’s offer provides more certainty for the future of WCB’s operations and employees, including a strong future competitor for milk supply," WCB chairman Terry Richardson advised.

Despite yesterday’s action, Saputo still has one major hurdle to jump in the form of blocking stakes from Murray Goulburn and Bega, which have a combined 36 per cent. There is also a strong likelihood that Kirin Holdings, which holds 10 per cent of WCB, will resist Saputo’s offer, leaving potentially as little as 54 per cent up for grabs for Canada’s largest dairy group.

In other words, reaching its target of at least 50.1 per cent is going to be incredibly challenging.

It was Hockey’s early call on the proposal that raised most eyebrows yesterday, however, upsetting Murray Goulburn which had hoped approval for Saputo would wait until after it received a decision from the Takeovers’ Panel.

The treasurer had other ideas, trying to offset protectionist perceptions that are forming thanks to the delayed decision on Archer Daniels Midland’s bid for control of GrainCorp.

"Australia is open for business and we welcome foreign investment when it is not contrary to the national interest," Hockey said, adding that this provided certainty for the Saputo bid.

It does appear rather convenient that a decision was reached so quickly on Canada’s Saputo, a deal not vigorously contested by the Nationals.

While few suspected Saputo would get knocked back, it does pose the question as to why we are still waiting for a decision on the GrainCorp takeover. After all, the ACCC made its mind up months ago.

So yes, Australia is open for business, and Australia welcomes foreign investment as long as it is not contrary to the political interest.

That said, we should still expect a tick from the treasurer on the ADM deal, just a smaller one with conditions attached.

Air New Zealand, Etihad Airways, Virgin Australia, Singapore Airlines

Air New Zealand chief executive Christopher Luxon has said his company has no intention of taking Virgin Australia private after speculation was reported in The Australian Financial Review this week.

According to the New Zealand Herald, Luxon ruled out a play for Virgin despite plans to boost exposure to the Australian domestic market.

“Setting up our own airline within that construct in the Australian domestic market would not be a profitable or efficient way of doing it,” he reportedly said, adding that a stake between 20 and 26 per cent is “where we want to be”.

The idea of one or more of Virgin’s big three shareholders – Air NZ, Singapore Airlines and Etihad Airways – has in fact been broached in this column on several occasions. It appears unlikely that all three will sit on a combined stake of close to 70 per cent for an extended period. Unlike most analysts, however, to our eyes the notion of a joint buyout by Air NZ and Singapore isn’t the most likely scenario should a deal eventuate, with Etihad likely to play a role.

Everyone has jumped to a hasty conclusion that Air NZ and Singapore make good bedfellows because they are both a part of the Star Alliance. However, few realise that Air NZ’s closest partner in Asia is Singapore Airlines rival Cathay Pacific, which is part of the One World alliance. Meanwhile, Air NZ has also cultivated a codeshare agreement with Etihad, making a joint bid from Etihad and Air NZ a much more logical option should one eventuate.

Ironically, if you book flights from Auckland to Singapore with Air NZ, your flight into the Asian city-state will be operated by Etihad. That’s hardly a sign of close relations between Singapore Airlines and Air NZ, though Luxon did say his firm enjoyed good dealings with both Singapore Airlines and Etihad.

Regardless, any deal is not likely to be seen within the next six months.

Woodside Petroleum

Doubt continues to grow around Woodside Petroleum’s planned 30 per cent stake in the massive Leviathan gas field in Israel, which is likely the biggest natural gas find of the past decade.

Last year, the Australian oil and gas giant signed a memorandum of understanding to claim 30 per cent of the project for $US1.25 billion. The deal, penned with JV partners Ratio, Delek Group and Noble Group, was expected to have closed by now, but a valuation lift has placed a cloud over Woodside’s position.

The gas field has added a couple of billion dollars to its worth this year, according to most analysts, leaving the JV partners holding out for more cash.

The other issue is that there is now an increased likelihood the project partners will build a pipeline to Turkey, in a shift away from the original plan of a floating LNG plant and exports to East Asia. As a result, Woodside’s expertise in this area is no longer as important to the project.

According to Israel’s Globes business newspaper, Delek Group – which controls around 45 per cent of the project – is particularly resistant to Woodside. Executives from the Australian company reportedly claimed, during meetings last week in Israel, that Delek has been avoiding them for six months.

The good news, the report suggests, is that Noble and Ratio, which together control 55 per cent, are still keen for Woodside to play a role, albeit at a higher price. But how high is Woodside prepared to go?

Meanwhile, Woodside execs weren’t just in Israel to progress talks on Leviathan, with Globes reporting the company is in preliminary discussions with Ratio to claim a share in the Roy and Neta gas fields, which are considered highly prospective given their similar make-up to Leviathan.

Dick Smith Electronics, Pact Group

The owner of Dick Smith Electronics is looking to raise over $300 million in its December IPO, which would value the firm at $520 million.

According to Dow Jones, the float will leave owner Anchorage Capital Partners hanging onto at least 20 per cent of the retailer, while its management will claim 12 per cent and former Myer chair Bill Wavish will hold 2.5 per cent.

A bookbuild is expected to take place today, with Goldman Sachs and Macquarie Group operating as lead advisors and offering shares at a price of $2.60.

Dick Smith is one of three big name floats among the host of listings slated for December. The others are Nine Entertainment and Raphael Geminder’s Pact Group, which will begin talking to fund managers next week to drum up interest in an IPO of upwards of $650 million.

The packaging group is valued at as much as $2 billion, with Geminder likely to retain a 40 per cent stake.

The timing of the float, the largest on the ASX this year, has not been finalised, but pre-Christmas is still considered likely.

Wrapping up

Sandon Capital Investments is looking to raise as much as $100 million through an ASX listing. The company’s stock is expected to begin trading on December 27.

Elsewhere, the NSW government will call for expressions of interest in the Port of Newcastle next Monday. The country’s oldest port is worth somewhere in the vicinity of $700 million and is likely to be sold by May 2014.

Finally, Transpacific Industries has reportedly received strong interest for its New Zealand division, including from private equity firms Blackstone and Carlyle Group. The $800 million business may also be listed on the New Zealand Stock Exchange, according to The Australian.

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