DataRoom AM: Rio’s buyback

A $5 billion buyback program could be announced by the iron ore miner soon to provide larger capital returns to shareholders.

Mining giant Rio Tinto is said to be close to announcing a share buyback worth close to $5 billion as part of a five-year strategy to lift underlying dividends by at least 10 per cent.

Elsewhere, several big name deals were sealed over the festive season as Macquarie Radio Network finally secured a game-changing radio merger with Fairfax, Hoyts fell into Chinese hands, Telstra expanded its Asian presence and RetireAustralia’s owners agreed to an offer from New Zealand interests. But while plenty of deals took place, perhaps the biggest news was a takeover that fell through in the form of Ferrovial’s $1 billion push for control of Transfield Services.

Mining analysts believe Rio Tinto could announce as early as next month a buyback of its shares worth up to $5 billion, according to the Australian Financial Review. The move is said to be part of a five-year strategy to lift underlying dividends by at least 10 per cent, and comes amid mounting pressure from Glencore chief executive Ivan Glasenberg for Rio to provide a “substantial” capital returns to shareholders.

A buyback could support Rio Tinto’s lagging share price and prompt Glencore to make another pitch to Rio’s board following its failed $US190 billion merger proposal in August.

Meanwhile, Transfield Services’ board has put itself under plenty of pressure to deliver in 2015 after failing to come to terms with suitor Ferrovial. The Spanish construction giant lobbed a $1bn bid the way of Transfield in October but merger talks came to an end just before Christmas owing to a major valuation gulf with Transfield’s board.

The failure to seal a deal at Transfield presented a sharp contrast to a number of other deals long in the sights of investors, with several takeovers taking place around Christmas. One of the biggest was the purchase of cinema group Hoyts by China’s ID Leisure. The deal with current owner Pacific Equity Partners was likely in the vicinity of $900 million, about double the valuation when PEP bought in back in 2007.

On a smaller scale financially was the long-awaited merger agreement between Fairfax Media’s radio division and Macquarie Radio Network. The tie-up will see Macquarie shareholders secure 45.5 per cent of the combined entity and Fairfax investors claim 54.5 per cent, while Fairfax will also receive $18m in cash. The merger, which excludes Fairfax’s 96FM in Perth (acquired by APN for $78m), requires ACCC approval and a vote of approval from Macquarie investors in March.

In telecommunications, Telstra confirmed pre-Christmas rumours of a purchase of Asian-based Pacnet for about $850m. The deal makes good on Telstra’s promise to broaden its Asian presence, with an expanded data centre network and more submarine cables. Telstra hopes to finalise the agreement around the middle of the year.

In the aged care sector, Infratil has teamed with New Zealand Superannuation Fund to claim control of local retirement village operator RetireAustralia for $640m. The company’s owners –Morgan Stanley and JPMorgan – had weighed a $600m IPO in 2014 but scrapped such plans in August.

Meanwhile, the board of Skilled Group has rebuffed a $600m-plus merger approach from rival Programmed Group. A combination of the two workforce and service providers has long been viewed as a logical move, but a deal appears unlikely at this stage as Skilled complains of ‘opportunistic timing’.

Finally, Seven Group has won a crucial court battle to claim control of the troubled Nexus Energy through a controversial $180m purchase, while Dexus Property Group has bought the Lakes Business Park in south Sydney for $153.5m.