DataRoom AM: The whole Nine yards
There may be signs of progress with the Nine Entertainment float but plenty of questions remain unanswered, not least of which is investor appetite. In M&A activity, the Takeovers Panel knocks back an invitation to intervene in the battle for RHG, Linc Energy completes a buyout of a Rio Tinto coal mine and Bradken attracts the interest of one of the world’s biggest companies.
Nine Entertainment
When James Packer sold Nine Entertainment to private equity group CVC Asia Pacific back in 2006 it was widely expected the company would wind up on the ASX at some point. In fact, wind up was almost a very appropriate term as a heavy debt load forced the company close to bankruptcy.
Instead, the debt troubles led to an opportunistic move by two other private equity groups — Oaktree Capital and Apollo Global Management — who left CVC with scraps.
After the controversy it still appeared only a matter of time until an ASX listing, with rumours of a December 2013 IPO finally emerging a few months’ ago.
The latest development, according to The Australian Financial Review, is a planned meeting between its hedge fund owners on October 21 where details of the extent of the raising will be determined.
The AFR believes Nine will seek $500 to $900 million from investors in a float that will value the company at $2.6 billion. It’s a far cry from 2011 when CVC was mulling a float that would have valued the group at an optimistic $5 billion. It instead ended up with a write-off of around $2 billion.
Before the proposed listing goes ahead one issue that needs to be addressed is the stickiness of the company’s backers.
Australian investors have been burned by private equity selling into an IPO in the past — Myer and Kathmandu come to mind — and will want some reassurances that the owners aren’t set to make a quick buck at their expense. On this score, a retention of a stake in the company that can’t be sold for a given period would be ideal.
One thing investors shouldn’t have to worry about, however, is an early departure of chief executive David Gyngell. According to the AFR, Gyngell is likely to have his stock placed in an escrow account that can’t be touched for three years. He will reportedly have around a 1-2 per cent stake in the listed business.
Given its status as a household name Nine will no doubt attract plenty of retail interest, but investors have every reason to be cautious. Past purchases of the company from willing sellers have turned out to be flops (Alan Bond and CVC), there is reportedly almost $1 billion in debt on its books, and the media sector is still struggling to catch the advertising dollars it had pre-GFC. There is also the hangover effect of the pain stemming from Myer and Kathmandu.
And if the US debt ceiling debate isn’t resolved by October 17, they might as well call the whole thing off.
RHG, Resimac, AMAC, Pepper Australia, Cadence Capital
The very public fight for control of $165 million home loans business RHG will be left to its board to sort out after the Takeovers Panel declined to conduct proceedings.
As it stands there is an offer of 49.5 cents a share in cash from Resimac and the Australian Mortgage Acquisition Company, as well as a competing cash and scrip proposal from Pepper Australia and Cadence Capital that currently has a slightly higher value (49.75 cents based on closing prices yesterday).
The controversy surrounds Cadence, which has said it would use its 17 per cent shareholding in RHG to help vote down the Resimac offer.
The Resimac-AMAC consortium called in the Takeovers Panel — the primary forum for resolving disputes over a takeover bid — on the contention that Pepper offered “collateral benefits” to Cadence for it to help fend off the Resimac deal, to the detriment of other shareholders. But the Panel felt intervention was not the answer to the squabble.
“One of the reasons the Panel reached this conclusion was that it did not think it would make an order preventing Cadence from voting on a scheme under which its shares could be expropriated,” the Takeovers Panel said in a statement.
Now it is entirely up to the board, which needs to select a preferred proposal as only one can be taken to shareholders.
Investors were nonplussed by the goings on yesterday, leaving the shares sitting at 48.5 cents by the end of trade — one cent below the Resimac-AMAC offer.
Linc Energy, Rio Tinto
Linc Energy, which this week announced plans to delist from the ASX, has purchased Rio Tinto’s Blair Athol mine, as was widely expected.
The deal sees Linc subsidiary New Emerald Coal acquire the currently mothballed operation for no upfront fee, but costs will be evident down the track when it commences site rehabilitation obligations in 2016.
The deal is conditional until commercial agreements are finalised. Linc believes this will take six months with the site to be reopened shortly after.
The agreement initially had the market buzzing with Linc shares climbing over 10 per cent at one stage. But the enthusiasm quickly waned and Linc closed basically flat.
It is days like that which have CEO Peter Bond fed up with the Australian market. He will soon find out if it’s any better in Singapore.
So irrelevant was the deal for mining giant Rio Tinto that it didn’t even release a statement to the ASX about the transaction or even republish Linc’s.
Wrapping up
The most watched float of the year globally could be closer than predicted, with Twitter to make its financial information available to investors in coming days, according to USA Today. If the report is accurate, the social media group should begin trading in mid to late-November. A float is expected to value the company at $US15 billion.
Back home, and Walton Construction Group has entered administration, with 30 employees to lose their jobs. Set up by owner and chief executive Craig Walton 20 years ago in Melbourne, the group at one point had over 300 staff and was responsible for the $103 million renewal of David Jones’ flagship Melbourne store.
Elsewhere, Bradken has had interest from trade buyers and private equity, according to the AFR, with massive US private firm Koch Industries seen as an interested party. However, none of the approaches so far have progressed to the formal disclosure stage.
And finally, mining junior Jupiter Mines has informed shareholders of plans to delist from the ASX. Unlike Linc Energy, Jupiter will not relist elsewhere. The decision was made as the board viewed the market as undervaluing the company, particularly in light of its move to an operator from an explorer. The market duly responded by sending the company’s shares down a further 26 per cent.