DataRoom AM: Saputo's big win

Murray Goulburn mulls its options as Saputo sees a majority stake in WCB, while the race for Shell's Australian assets continues.

The jostle for control of Warrnambool Cheese and Butter could be over today as Saputo moves to a majority stake just ahead of its final offer deadline being hit. The development leaves Murray Goulburn with a few decisions to make.

Elsewhere, the number of bidders thins for Royal Dutch Shell’s Australian refining and petrol businesses, BHP Billiton exits a joint venture in the Philippines and speculation swirls around the potential for Qantas asset sales.

Saputo, Warrnambool Cheese and Butter, Murray Goulburn

Canadian dairy firm Saputo is counting its Warrnambool Cheese and Butter offer acceptances as quickly as the hours are counting down until the firm’s final deadline is hit. It appears as if it will reach a 50 per cent shareholding in the nick of time.

As of yesterday’s official update, Saputo had claimed 47.85 per cent of WCB, leaving it just 2.15 per cent shy of a majority stake. It has until 1900 AEDT today to reach 50 per cent or its $9 a share offer (potentially rising to as much as $9.60 a share) will cease.

However, news late yesterday afternoon that Wilson Asset Management would sell its 1.5 per cent stake to Saputo has calmed nerves and likely already pushed the Canadian firm’s shareholding above 50 per cent. This will allow it to leave its proposal open to shareholders for a further fortnight, which effectively means it is game over.

Such a circumstance should coerce rival suitor Murray Goulburn to sell its 18 per cent stake in WCB. Given the time and money Murray Goulburn has chucked at the bid, it will be a bitter pill to swallow, and scarcely made any sweeter by the around $50 million profit it stands to receive for its shareholding.

Regardless, that money should come in handy for Murray Goulburn, which has plenty of cash and bank backing to launch a bid for another dairy firm. The challenge will be finding a suitable target, with Australian dairy firms getting snapped up left, right and centre by overseas dairy leaders keen to gain an entry point into the lucrative Asian market.

In truth there was no better fit for Murray Goulburn than WCB. Even if it eventually made a play for a firm of the ilk of Bega Cheese, it would likely be a mere consolation prize given the comparative lack of synergies. Its focus may instead be directed toward making Saputo’s entry to life in Australia as unpleasant as possible by competing hard to boost the ranks of its Victorian dairy farmers at WCB’s expense.

Meanwhile, several Chinese, Japanese and European dairy firms, who were reportedly watching proceedings at WCB very closely, could easily shift their Australian attentions toward Bega or perhaps Murray Goulburn in the near future. And, as consolidation in Australian dairy gathers momentum, the likes of Saputo and New Zealand’s Fonterra are unlikely to take any backward steps.

Royal Dutch Shell, Macquarie Group

The field of bidders for Royal Dutch Shell’s local petrol refining and retail assets has been reduced to two after a consortium led by private equity firm TPG dropped out of the race, according to the Australian Financial Review.

Aside from the Geelong refinery, Shell Australia has yet to confirm the assets are on the market, though the report suggests the auction process is edging toward a conclusion, with a big-name joint venture between Macquarie Group and Glencore Xstrata one contender.

The Macquarie JV will fight a consortium involving oil trading giant Vitol and the Abu Dhabi Investment Council, which shows there is no shortage of firms with deep pockets interested in the assets even after TPG’s exit.

Shell is expected to receive around $3 billion for the assets, a nice addition to its growing cash pile from the sale of non-core assets.

Australia appears to be a key focus for its divestment spree, with the company announcing the offload of two minority stakes in Western Australian LNG assets earlier this week for $1.3 billion. The company has also pulled back on spending at its Arrow Energy CSG joint venture in Queensland and is likely mulling a block trade of its 23.1 per cent stake in Woodside Petroleum.

That stake is worth around $7 billion and a sale could see its investment in Australia clear $11 billion in 2014.

Qantas Airways

A partial float of Jetstar is viewed by analysts as the least likely of several options Qantas Airways may pursue after completing a strategic review next month, the AFR reports. A sale of a minority stake to a third party is, however, a real possibility.

With Qantas’ costs rising in the wake of a downgrade to its credit rating, the national carrier is desperate to find avenues to raise cash.

Among the options is a partial sale or float of Jetstar; a partial sale or float of the company’s popular Frequent Flyer scheme; and a sale of its long-term airport terminal leases. Perhaps even a combination of all three.

The latter appears a sound option, while the potential offload of part of Jetstar or the loyalty division has the potential to be complicated. More crucially, a deal would be unlikely to extract true value for the airline.

Qantas is currently valued at $2.5 billion meaning the $3 billion valuation ascribed to the Frequent Flyer division and the $1.5 billion-plus valuation on Jetstar would be hard to achieve, even if the divestment were a minority stake.

BHP Billiton

BHP Billiton has exited a joint venture in the Philippines for a small fee of $US3 million ($A3.4 million). The company will also pay $US24.5 million ($A27.91 million) to the majority stakeholder in the Palawan gas field, Otto Energy, after completing exploration drilling.

For a miner the size of BHP, the fees are inconsequential. The deal shows the focus of the company remains on stripping itself of non-core assets as commodity prices remain well off highs.

The move sees ASX-listed Otto lift its interest in the project to 93.2 per cent.

Wrapping up

ASX-listed Saracen Mineral Holdings has acquired a gold mine in Western Australia for $40 million from the world’s largest nickel producer Norilsk Nickel.

The deal for the Thunderbox gold mine and processing facility was signed by the Australian firm’s subsidiary Saracen Metals and will see the future environmental obligations of the mine also transferred.

Finally, Italian carmaker Fiat has completed its purchase of the US-based Chrysler five years after a merger of the firms. The near $5 billion deal to buy the 41.46 per cent of Chrysler it did not own creates the world’s seventh largest automaker. Fiat is likely to pursue a convertible bond issue to fund the deal.

It represents the latest chapter in Chrysler’s return to prominence after filing for bankruptcy in April 2009.

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