DataRoom AM: Rio's exit

Rio Tinto’s divestment spree continues apace, with the miner finding a buyer for its $1 billion share of the Clermont coal mine in Queensland. That makes $3 billion worth of divestments for the year, leaving the market to ask: what’s next?

Elsewhere, Saputo reclaims the lead position in the race for Warrnambool Cheese and Butter, more suitors come out of the woodwork for AAPT, privatisation is on the minds of more than just Canberra’s politicians and the valuation for Nine Entertainment becomes clearer.

Rio Tinto, Glencore Xstrata, Sumitomo Corporation

Rio Tinto has offloaded its majority stake in the Clermont thermal coal mine in Queensland. The $A1.06 billion deal, struck Friday with Glencore Xstrata and Sumitomo Corporation, will see the two buyers split Rio’s 50.1 per cent stake. Glencore will take control of the mine’s operation and the marketing of its coal.

The deal is a victory of sorts for Rio given the beaten down coal sector at the moment. Just a month ago it was thought the miner may put the sale on the backburner after bids from three parties failed to come near Rio’s valuations.

India’s Adani Corporation, Dutch-controlled Galena Private Equity Resource Fund and Australian-based New Hope Corporation all reportedly tabled offers around or just under $850 million.

In light of that, Rio can be well pleased that it held strong for a while longer.

The Clermont deal is the latest in a string of exits for Rio, which is looking to pay down its debt and focus on core assets. In all, it has offloaded $US2.92 billion in assets this year and there’s more to come.

Despite having a few successes, however, Rio hasn’t found it easy retreating from some of its less valuable assets. In June it called off a sale of its diamonds business and two months’ later it said a sale of its aluminium division was not possible in the current environment.

Another major offload, its 59 per cent stake in Iron Ore Co. of Canada, is at risk of going the same way with several bidders reportedly withdrawing their interest.

Apollo, Blackstone and Glencore reportedly withdrew early on, while Teck Resources and Minmetals have dropped out of the running this month, according to Bloomberg. It’s suggested the asking price of up to $US4 billion has been considered a bit rich by suitors.

The deal with Glencore may not be the only one Rio seals with the Swiss-based commodities trader, with reports the two are slowly working on a joint venture arrangement in the Hunter Valley.

Rio is planning to reduce its 80 per cent holdings in the Coal & Allied thermal coal assets in the NSW region to 50 per cent and is believed to be pursuing a deal with Glencore on the assets.

The other divestment reportedly on the cards is its troubled Mozambique coal unit. Rio announced a painful $3 billion write-down in the value of the assets in January, just two years after it acquired them through a $3.7 billion takeover of Riversdale Mining. The disastrous episode led former chief executive Tom Albanese to lose his job.

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

The $8 a share bid for Warrnambool Cheese and Butter eventuated as expected on Friday, with Canada’s Saputo laying down the gauntlet to its smaller rivals in the fight for WCB.

Saputo is more than ten times larger than WCB’s other suitors, Murray Goulburn and Bega Cheese, leaving it with plenty more headway to overpay.

As it stands the first bid, that of Bega Cheese, is around 25 per cent off the latest offer in a sign of how swiftly this high stakes game of poker has gotten serious.

In the wake of the latest Saputo proposal all talk is on whether Murray Goulburn will raise its offer. For now, the Victorian-based dairy group is calling for calm.

“MG believes that resolution of the future ownership of WCB will be a long process and that WCB shareholders should not act prematurely in relation to giving up control of their shareholdings,” the group said in a statement.

“MG remains committed to acquiring WCB and to satisfying all conditions associated with its offer as quickly as possible.”

Bega, meanwhile, is largely considered a bystander from here on out given its much smaller size. That said, it will be back in the spotlight later this week when the ACCC gives its verdict on a possible Bega-WCB merger. Should it approve, then Bega might make one last play, though it’s hard to see it outflanking Saputo.

It is poised, however, to receive a significant windfall through its 18 per cent shareholding in WCB.

Shareholders in WCB had another happy day on Friday, with stock climbing to a record high of $8.45 before closing at $8.42. It’s hard to say whether this represents a market factoring in the value of franking credits in the Saputo offer or whether many out there are still expecting a revised offer from MG or Bega. Probably the latter given there is still a lingering rumour that NZ giant Fonterra may enter the fray.

AAPT, Telecom NZ, TPG, Vodafone Australia, Ontario Teachers’ Pension Fund

Telecom Corporation of New Zealand will have little trouble finding a buyer for its AAPT business in Australia, but it remains to be seen whether it will get the price it is after.

As we have previously discussed, TPG and Vodafone Australia are interested in AAPT, largely due to its fibre optic cable infrastructure. Joining them in the running, according to The Australian Financial Review, are private equity group CHAMP and the Ontario Teachers’ Pension Fund as well as potential trade buyers iiNet and M2 Telecommunications.

The paper suggests the Ontario Teachers’ Pension Fund and TPG are the frontrunners for the $400 million business and it appears unlikely M2 and iiNet will pursue a bid with much fervour.

Still, the AAPT business has had plenty of suitors in the past but none have been able to satisfy the demands of Telecom NZ.

Privatisations, Medibank Private

The Queensland government has backed away from speculation it is looking to offload SunWater or Powerlink. According to the AFR, moves have been made to kickstart the privatisation process, with investment banks called in to begin scoping studies on the two businesses.

On Sunday, Queensland Treasurer Tim Nicholls said the Newman government had no plans to sell the businesses though reports of the scoping studies have not been refuted. The government has long maintained it would not pursue privatisations unless it took such plans to the next election.

Meanwhile, the biggest confirmed privatisation plan on the agenda right now is that of Medibank Private. Advisers to carry out the scoping study are likely to be appointed by the end of November, with Treasurer Joe Hockey keen to finalise the plans for the sale before the May budget, according to the AFR.

Wrapping up

Shareholders in Nine Entertainment are free to reduce their holdings this week in ranges that value the media group between $2.5 and $2.7 billion, according to the AFR. The price provides an indication as to the valuation of Nine when it lists in December.

Meanwhile, private equity firm Kohlberg Kravis Roberts has put its hand up to take a slice of Regis Aged Care. Macquarie Group has reportedly placed its 46 per cent stake up for grabs, with KKR willing to pay around $170 million to seal a deal, according to The Wall Street Journal.

Finally, Twitter is nearing its big day on the New York Stock Exchange. The social media company could list as early as November 7, with 70 million shares on offer at between $17 and $20 to raise as much as $1.4 billion.

The NYSE carried out a trial run of its listing on Saturday as Twitter looks to avoid the problems that plagued Facebook’s float on the Nasdaq, according to Reuters. Given its size and profile, it will be the most closely watched float around the world this year and success should provide a further boost to the already surging IPO market.