DataRoom AM: Superior Saputo

Saputo has emerged the likely victor in the battle for Warrnambool Cheese and Butter, while a tie-up between Air New Zealand and Singapore Airlines could ruffle feathers at Virgin Australia.

A victor is now all but declared in the long running fight for Warrnambool Cheese and Butter as Saputo moves to within touching distance of a majority shareholding. The focus now turns to the next local takeover target as dairy consolidation continues apace.

Elsewhere, an alliance between Air New Zealand and Singapore Airlines could have ramifications for Virgin Australia, Fortescue Metals Group looks to gas to power its Pilbara expansion and the debate over the merits of privatisating of Australia Post reignites.

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

After four torrid months of back-and-forth moves in the race for Warrnambool Cheese and Butter, it appears time to call the winner.

Yesterday, former suitor Bega Cheese opted to offload its 18.8 per cent stake in WCB to Canadian dairy firm Saputo, effectively shutting the door on Murray Goulburn’s hopes to create an Australian ‘dairy champion’.

The deal will see Saputo climb up the register in a major way, with its stake likely now beyond 45 per cent and well within sight of a majority holding. There is still 28 per cent of the company held by potentially hostile rivals in Kirin Holdings and Murray Goulburn, but it appears they will have little power in curbing Saputo’s surge to 50 per cent, and beyond.

Now it merely appears a question of when MG and Kirin will lick their wounds and take the Saputo offer.

WCB boss David Lord is pressing Murray Goulburn to take the Saputo offer now, though one suspects MG would take little heed to his comments given the obvious tension between the two parties.

"Obviously we welcome Bega's decision to accept the Saputo offer and we're pleased that Bega has reached the same conclusion as the WCB board and that is that the Saputo offer is superior," Lord told AAP.

"We would be very disappointed if all WCB shareholders didn't take advantage of what is a significant price premium compared to our share price when this process started."

Murray Goulburn, for its part, has said it would reassess its plans on the back of the Bega decision.

Assuming MG takes the Saputo deal, and walks away with a tidy profit, eyes will quickly turn to what it will do with its cash. It has made no secret of its desire to expand through acquisition but there are few viable options to do so at this point in time.

Perhaps Bega Cheese will become a target, though it offers fewer synergies to MG than WCB did. Still, that might be a good thing given the regulatory issues around WCB served to keep Murray Goulburn fighting with one hand tied behind its back for the entirety of the battle.

Bega, it should be noted, continues to trade well above where it was prior to the takeover activity. There’s clearly a takeover premium factored in, with investors waiting patiently for the first move on the NSW-based dairy group.

The prize amid all the activity is a lucrative opportunity to satisfy the growing demand for dairy in Asia.

Air New Zealand, Virgin Australia, Singapore Airlines, Etihad Airways

The jostling for influence at Virgin Australia took a fresh turn yesterday, with a new alliance between Air New Zealand and Singapore Airlines likely putting fear into fellow major shareholder Etihad Airways.

The three airlines control almost 70 per cent of Virgin Australia, with Air NZ holding 24.5 per cent and Etihad and Singapore controlling 21.2 per cent each.

The strength of the major shareholders and the size of their positions have long had analysts pondering whether there may soon be a push to take the airline private. Expectations had long centred on either a three-pronged move, which would be complicated, or a joint move by Air NZ and Singapore.

Until yesterday the latter made little sense as Air NZ and Singapore had no alliance of great significance. Indeed, the only apparent close relations were between Etihad and NZ through a codeshare agreement.

But with Air NZ and Singapore announcing a new alliance yesterday on routes between their two home nations, investors are starting to wonder whether this will have any impact on Virgin.

Should the two team together to take Virgin private, they would easily be able to reach the 50 per cent level for majority control, leaving Etihad out in the cold.

But while the speculation is worth considering, Air NZ and Singapore have every reason to step on the brakes.

Both became involved in a battle for control for Ansett Australia, which at the time strained relations between the two parties. Soon after their stoush for control, which was won by Air NZ, Ansett went bankrupt and left Air NZ crippled.

It serves as a cautionary tale and history suggests that buying the lossmaking, number two airline in Australia wouldn’t be a particularly smart move.

And what would they get out of the deal other than an airline that isn’t making any money?

All three airlines wanted codeshare deals with Virgin and to provide the group with the finances to put rival Qantas under strain. In both cases, they have succeeded. Until Virgin becomes profitable, there is really little to be gained from taking it private.

Fortescue Metals Group

Fortescue Metals Group has agreed a new energy plan for its Pilbara operations, converting the 125 megawatt Solomon power station from diesel to gas to save $US20 million a year.

The iron ore miner said the altered power station, which is run by Duet Group and TransAlta Corporation, had the potential to open up expansion opportunities at its flagship Pilbara operations.

ASX-listed Monadelphous Group will construct a 270 kilometre pipeline from the plant after signing a $100 million contract.

The pipeline will be fully operational early next year.

Meanwhile, Duet Group has announced a $100 million capital raising to help fund the cost of its participation in the development.

Australia Post

Reports today suggest the Business Council of Australia is pushing for the $3 billion privatisation of Australia Post.

It is the latest stimulator of debate over the sale of state assets and won’t be the last as governments across the country look to shore up their budgets.

The comments from BCA offer a hint to the likely findings of the National Commission of Audit given the industry body’s head, Tony Shepherd, chairs the audit. The real discussion, however, will come upon the release of the audit and, separately, the national competition policy review.

Until then, little that is said publically – beyond comments from federal MPs – is of much consequence given the Abbott government has made it clear that Australia Post is not up for sale.

Healthscope, IPO market

The likelihood of a float of private equity-run Healthscope is increasing, according to Business Spectator’s Data Room. Rumours first surfaced of a possible relisting of the $4 billion hospital operator late last year as private equity firms rushed to the market with a long list of IPOs.

The Carlyle Group and TPG purchased Healthscope for $2 billion in 2010 and it is believed they could commit to a relisting within the next few months. A float would likely provide the two owners with a healthy profit, though no doubt its prospects largely rest on the market staying healthy during the first quarter of the year.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles