DataRoom AM: Sensis slice

Telstra appears close to a sale on former gem Sensis, while the battle for WCB could be nearing the end as Saputo digs in for one more offer extension.

Telstra Corporation could be ready to make another multi-billion dollar divestment, but this time closer to home.

Sensis, the telco’s directories arm, has turned from golden goose to rotten egg and Telstra could be ready to sell-out for as much as $3 billion. Even if it managed to recoup that much – which seems optimistic – shareholders have a right to feel aggrieved given the lofty valuations touted for the business eight years ago.

Elsewhere, Murray Goulburn may be preparing a fresh bid for Warrnambool Cheese and Butter as Saputo declares as final its latest offer deadline, another Australian wealth manager gets snapped up and the long running auction of United Petroleum nears an end.

Telstra Corporation, Sensis

Sensis has been a drag on Telstra’s results for several years and finally the telco appears to have had enough of the underperformance.

According to The Australian Financial Review, the telco is close to securing a $3 billion sale of the directories business with US private equity firm Platinum Equity Partners.

It continues a divestment trend that should leave the telco with a very significant cash pile.

But that’s not to say shareholders should be blushing with excitement as the past decade of Sensis – which runs the Yellow and White Pages as well as the Trading Post – tells a tale of misguided optimism.

In 2005, then Telstra boss Sol Trujillo boldly declared the Sensis operations as the jewel in the company’s crown while disregarding the idea to float the business separately.

At the time Sensis was performing well and represented a significant growth option for the group. But words uttered by Trujillo in November of that year have come back to haunt.

Responding to questions of the threat of Google to Sensis, Trujillo responded:

“Google Schmoogle… We're outgrowing Google in Australia. We're doing more, we're growing faster and we have more capability, because we're more relevant.”

Hindsight, as they say, is 20-20 and those comments now appear as absurd as they were arrogant.

Indeed, when you hear things such as that from company bosses you have every reason to run as a shareholder. In this case it took a few years before Sensis revenues topped out in 2009 and they have been on a worrying downward trajectory ever since, with the company too slow to move from a print to digital focus.

In the last financial year alone, earnings for the division fell by over 20 per cent.

The pain for shareholders is highlighted in the changing price assessments for the group.

When talk surfaced of the Sensis float in 2005 it came with a $10 billion-plus valuation from analysts. Now, Sensis, which is carried on the Telstra books with a value of $851 million, may struggle to even reach the $3 billion touted in the press. It seems $2 billion, or even $1.5 billion, may be a more likely outcome.

For comparison sake, Google had just hit a valuation of $100 billion around the time of Trujillo’s ‘Google Schmoogle’ comment. Its market capitalisation now rests at around $400 billion.

Should a deal be reached for Sensis, it would be the third major move Telstra has made in the past month.

First, it successfully floated its Chinese internet company Autohome on the Nasdaq Stock Exchange in December and then quickly followed with a $US2.4 billion divestment of its Hong Kong mobile service provider CSL.

The former has seen its stake in Autohome valued at over $2 billion, though it has yet to cash in any of its chips despite having seen the value of its investment increase tenfold.

All eyes are on what Telstra will do with its cash, with talk of buybacks and special dividends rife. Acquisitions in Asia, however, may be the more likely pursuit, specifically in the cloud computing space.

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

The heavily publicised battle for Warrnambool Cheese and Butter may not have long to run if the expectations of Canadian suitor Saputo are fulfilled.

On Friday, Saputo extended the deadline of its $500 million takeover offer by 12 days as it reported acceptances had climbed to 21.4 per cent.

Crucially, Saputo declared the deadline ‘final’, meaning it will only extend it should acceptances climb above 50 per cent by the end of the day on January 22. The suitor is hopeful the declaration will encourage key shareholders to sell their stakes, with Bega Cheese (19 per cent), hedge funds (~15 per cent) and Kirin Holdings (10 per cent), the prime subjects of their latest move.

Should Bega fall it would likely be the catalyst for other key shareholders to follow suit.

Aware of the risk that recent momentum could carry Saputo to a majority shareholding, rival bidder Murray Goulburn is rumoured to be mulling a last ditch bid to convince shareholders to hold off on their decision until after the Takeovers Panel rules on its bid.

According to the AFR, Murray Goulburn may raise its offer to $10 a share, which would create significant uncertainty in the minds of shareholders mulling a sale of their stock to Saputo at anywhere between $9 and $9.60 a share (depending on the level of acceptances).

The Takeovers Panel is due to make a decision on whether it will allow the Murray Goulburn bid to proceed by the end of February.

Centric Wealth

Financial planner and adviser Centric Wealth is set to fall into the hands of local rival Financial Index Wealth Accountants in a deal worth $130 million.

The deal, confirmed over the weekend, concludes a six-month sales process by Centric owner Champ Private Equity.

Boutique firm Chase Corporate Advisory, which advised Financial Index on the acquisition, helped secure the deal by bringing in KKR Asset Management, which invested $43 million to claim one-third of Financial Index.

It continues the acquisitive streak Financial Index has been on since 2001, with over 40 bolt-on purchases made in that time.

The Centric Wealth brand will be retained post-takeover.

United Petroleum

The long running auction for United Petroleum is nearing an end, with final bids due this week, according to the AFR.

At least three buyers are believed to be in the running, including a UK-based trading house and Korea’s SK Group.

Caltex has previously been rumoured to be a player in the sales process, though its name was not mentioned.

The report indicated a sale would fall short of the $1 billion figure hoped for by United’s owners. Analyst valuations have fallen between a wide range $600 million and $1 billion.

It comes amid strong, but as yet unconfirmed, speculation of an imminent sale of Royal Dutch Shell’s Australian petrol retail and refining assets, which could fetch around $3 billion.

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