DataRoom AM: Saputo sticking point

The Canadian dairy company's Warrnambool bid could still end in deadlock, while Pact shrugs off concerns over its weak debut.

Saputo has upped its offer for Warrnambool Cheese & Butter after the Takeovers Panel ruled its latest bid had caused confusion in the market. With the panel now placated, Saputo returns to the lead position in the heated race for WCB but its chances of securing majority control appear slim.

Elsewhere, the IPO market takes two more blows, Leighton Holdings’ Thiess secures a big Bowen Basin contract, Bradken makes a play for Austin Engineering and APA Group looks to wrap up control of Envestra.

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

Canadian dairy giant Saputo has appeased the concerns of the Takeovers Panel by raising its offer for Warrnambool Cheese & Butter one more time.

The panel was last month called in by rival suitors Murray Goulburn Co-operative and Bega Cheese amid assertions the latest bid from Saputo was misleading, a claim the panel yesterday confirmed it agreed with.

The bid that was drawn to the attention of the panel was a $9.20-a-share offer (conditional on 50 per cent acceptances), which Saputo claimed was an improved offer to one that would have seen shareholders receive $9 a share plus the possibility of as much as 56 cents in franking credits.

The new proposal from Saputo will see shareholders still receive $9 a share regardless of the outcome, rising to $9.20 a share once 50 per cent acceptances are achieved. However, it will now lift to $9.40 a share with 75 per cent acceptances and $9.60 a share with 90 per cent acceptances.

All three levels appear unattainable at the moment given the shareholdings of Murray Goulburn, Bega and Lion Nathan combined are over 46 per cent and none of these groups have shown a willingness to engage with Saputo so far.

As forecast, the Canadian group has also extended the offer deadline from this Friday until January 10, 2014. Expect Bega to follow with a similar move given its deadline is slated for Friday and it remains a long way from a controlling stake.

WCB, meanwhile, appears happy to maintain its support for Saputo despite a recent lift in Murray Goulburn’s offer to $9.50 a share. The takeover target’s board will soon provide an official response to the latest Murray Goulburn offer.

Saputo has so far received acceptances of 16.9 per cent of WCB stock, while Bega’s bid has received acceptances of less than 1 per cent.

Murray Goulburn has yet to declare its bid unconditional due to a lack of regulatory approval and consequently has been unable to take acceptances.

As it stands, Saputo is the best-placed suitor, but it remains hard to see any other result other than a deadlock.

IPO market, Pact Group, GDI Property Group

Two lacklustre debuts on the ASX yesterday have seen fears for the IPO market reach fever pitch. Following recent disappointing starts by Nine Entertainment, Dick Smith Holdings and Redcape, investors were starting to get edgy that the recent IPO boom could be starting to fizzle. Yesterday's falls in Pact Group and GDI Property Group stock have only furthered the concern.

Pact, which raised $649 million through its float, closed 12.5 per cent below its listing price, while GDI, which raised $567.6 million, fared scarcely better, slumping 11.5 per cent. The former was the second biggest IPO of 2013, while the latter was the largest real estate listing of the year.

It’s not yet time to panic given the market has fallen around 5 per cent since both companies completed their bookbuilds, but the prospect of $8 billion in floats in the first half of 2014 is looking less likely. That may change, however, should the Federal Reserve maintain the current level of stimulus, providing another kick-start to equities around the world.

Part of the reason for soft initial trading is investor caution and the fed could get rid of much of that with a decision to maintain stimulus at its current level. It would be a dangerous move, but markets would welcome it in the near term.

Meanwhile, Pact Group’s Raphael Geminder remained upbeat despite the tough initiation and has pledged to retain his 40 per cent commitment in the business.

"I've committed to holding a meaningful stake to maintain some serious skin in the game, without having control or reducing liquidity. We are in this business for long-term growth," he told The Australian.

The company has plans to expand globally and hopes to turn itself into a $5 billion company, from a level around $1.5 billion right now.

The float proceeds will be used primarily to pay down debt and fund further acquisitions as the company looks to expand further into Asia.

The weakness for Pact was a little surprising given it was a rare listing that was not coming from private equity and had strong support during its bookbuild.

Despite that, IPOs are always a risky bet and Warren Buffett’s viewpoint on new listings is worth taking heed of before investing.

"It's almost a mathematical impossibility to imagine that, out of the thousands of things for sale on a given day, the most attractively priced is the one being sold by a knowledgeable seller to a less-knowledgeable buyer,” he said last year.

Indeed, when you buy into a company that’s been listed for years you are buying from someone who (hopefully) has just as much information available to them as you have. When you buy into an IPO however, you are buying from people who have more information than you. And they are selling because they think they are the recipients of a good deal.

It’s not the best recipe for success.

Meanwhile, Amcor spin-off Orora hits ASX boards today, hot on the heels of the successful split of the Recall business from Brambles.

The final IPO worth watching in 2013 will be next week’s listing of travel insurer Cover-More.

Bradken, Austin Engineering

Bradken has received muted support for a $300 million takeover offer it sent the way of Austin Engineering yesterday.

The proposal would see Austin shareholders receive 0.75 Bradken shares for every one Austin share they hold, which equates to a takeover premium of around 30 per cent.

A deal makes sense, the board of Austin said in a statement, but not on the current terms.

Austin maintains that the all-scrip offer undervalues its business, though it will engage with Bradken to see if appropriate terms can be reached.

Bradken already owns 21.5 per cent of Austin stock.

Austin, meanwhile, will pursue a $30 million capital raising to ‘sophisticated investors’ to fund its South American expansion plans.

We are still waiting for a company to offer shares to ‘unsophisticated investors’.

APA Group, Envestra Ltd

As expected APA Group has fired in a fresh bid for Envestra some five months after it first made its intentions known. The revised $2.2 billion offer will be taken to shareholders by the board of Envestra.

APA, which already owns 33 per cent of Envestra, said it made the new offer of $1.17 a share as a result of limited due diligence and discussions with the independent board of Envestra.

The gas pipeline group is hopeful a scheme of arrangement will be able to be implemented by June next year.

The deal is around a 14 per cent improvement on its initial offer.

According to The Australian, the board was not as confident about the worth of the deal as it appears, with the decision made considered to be “line ball”.

Envestra shares yesterday closed at $1.12, an almost 5 per cent discount to the latest offer.

Thiess, Wesfarmers, Leighton Holdings

Leighton Holdings subsidiary Thiess has secured a four-year, $570 million contract with Wesfarmers Resources.

A coal subsidiary of Wesfarmers, Wesfarmers Resources has re-committed to Thiess for assistance with its Curragh North Coal Mine in the Bowen Basin.

Thiess signed a 10-year deal for the Queensland mine in 2010, with the latest development an extension to that contract.

Wrapping up

Insurance Australia Group has raised $1.2 billion through an institutional placement priced at $5.47 a share. The money was required to help pay for its $1.85 billion buy of Wesfarmers’ insurance underwriting business. Already investors are down on their investment after the group’s shares fell over 5 per cent to $5.40 yesterday in a lacklustre response to the acquisition. A $200 million retail offering is likely in coming weeks.

In resources, BP plc is considering an auction of its Australian refineries and petrol stations, according to the Australian Financial Review. The sale has been weighed for a long time and could reap as much as $3 billion for the oil and gas giant.

Finally, Ruralco Holdings has announced a $25 million institutional placement. The capital raising, which is fully underwritten, could allow for bolt-on acquisitions to be pursued by the farm services company.

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