DataRoom AM: Unclogging Clydesdale

NAB may offload its costly UK banking business, Clydesdale Bank, while the battle for Warrnambool Cheese & Butter may see a last-minute entrant.

Analysts are drawing up exit plans for National Australia Bank in the UK. It’s not the first time speculation has swelled of an imminent divestment of NAB’s Clydesdale Bank, but the stars may be aligning on this occasion.

Meanwhile, as the Warrnambool Cheese & Butter takeover battle drags on, could there be a fresh face to enter the fray? Bega Cheese boss Barry Irvin may have hinted as much in comments yesterday.

Elsewhere, Chi-X welcomes a major new investor and Rupert Murdoch announces plans to delist 21st Century Fox from the ASX just a year after the company was formed through a split of media giant News Corporation.

National Australia Bank, Clydesdale Bank

Speculation is growing that National Australia Bank will look to offload its UK banking business, Clydesdale Bank, this year.

For years the troubled British financial sector has weighed on the local bank’s earnings, leaving it trailing its peers on several key metrics and making it the ugly duckling of the big four in the eyes of many market watchers.

But signs of life in the UK economy have stimulated expectations that a divestment could be in the works in the near-term.

Analysts from Macquarie Group and JPMorgan yesterday both outlined cause for optimism on a sale.

"The successful partial sale of Lloyds in 2013 alongside recent improvements in transaction volumes may suggest the path to a successful UK exit may be becoming clearer," JPMorgan analyst Scott Manning said.

He was joined in a similar appraisal by Macquarie analyst Mike Wiblin, who expects the improving economy to offer a suitable way out for NAB in the UK.

"NAB remains committed to its plan to sell the UK franchise, but not at any price," he said. "Given an improving UK macro (environment), it may well be that it can get a better price this year."

Last year NAB boss Cameron Clyne told investors he would consider spinning off the UK business should the UK government’s privatisation plans for its 33 per cent stake in Lloyds Banking Group be well received.

The British government has said it will offload the stake this year as the latest UK growth, jobs and inflation numbers suggest an economic recovery has taken root.

Still, M&A activity remains subdued, but as soon as it gathers pace – which some market watchers argue is already occurring – it would be a surprise if NAB didn’t at least test the waters on a sale.

There have also been rumours that the improving economic conditions could lead NAB to be a buyer in the UK market, but that seems a far-fetched expectation given the troubles it has experienced in the region and the likely investor pushback.

NAB entered the UK market over two decades ago through the 1987 purchase of Clydesdale Bank. It has since added to the unit with the purchase of the Yorkshire Bank.

It’s not the only possible sale NAB could consider, with some analysts suggesting part of its wealth management division, MLC, may also be up for grabs in the near-term.

Nomura bank analyst Victor German told The Australian Financial Review that NAB may be wise to pursue the option of outsourcing its product manufacturing.

“I can see a scenario where all banks, not just NAB, will potentially look to divest the underwriting businesses,” he told the paper. “MLC is one of the more obvious candidates. They’ve had some challenges this year coupled with under-performance over the last decade.”

At this point the rumours are little more than analyst exuberance and the UK business is more likely to be up for grabs before any part of the MLC business is hived off.

NAB acquired MLC for $4.56 billion at the turn of the century.

Warrnambool Cheese and Butter, Bega Cheese, Saputo, Kirin Holdings, Fonterra, Murray Goulburn

Saputo is widely expected to extend its bid for Warrnambool Cheese & Butter today ahead of its current deadline expiring at 1900 AEDT. The lack of communication about its plans has raised eyebrows, however, with reports the quiet approach may again see it receive attention from the Takeovers Panel.

It is rare for a company to wait to the day of a deadline to declare an extension to an on-market bid, but little about this long-running saga has been normal.

Separately, the Canadian dairy firm announced it had cleared the 20 per cent mark in acceptances, meaning it is now the largest shareholder in WCB. But there’s still a long way to go to achieve a seemingly elusive majority shareholding.

Meanwhile, rumours of Bega Cheese being chased by NZ giant Fonterra assisted the former’s share price yesterday, with Bega adding over 2 per cent in a broadly flat market.

Bega is one of the best candidates for a takeover in the coming year, but expect little action on that front until the dust settles on the scrap for WCB.

The most significant news yesterday, however, was the heavily reported, though scarcely analysed, comments from Bega boss Barry Irvin.

His remarks hinted at the possibility another bidder could yet surface to challenge Saputo and Murray Goulburn.

"We have had a number of inquiries [regarding Bega’s 18.8 per cent WCB stake] and I don't think it's appropriate to reveal who those parties might be ... (but), yes, we have had some international inquiries,” Irvin said.

"The reality is ... the Europeans and the Asians are all very interested in well-performing Australian dairy assets."

The latter quote is intriguing given there are currently no European companies in play regarding the WCB chase, and Kirin Holdings – with 10 per cent of WCB – is the only Asian firm involved (and not a suitor). All of which begs the question: is another firm ready to enter the fray?

The most logical European dairy giants with an interest in Australia are the Lactalis-owned Parmalat – which is rumoured to be close to a takeover of WA-based Harvey Fresh – and Dutch group Friesland Campina.

The latter, like many in the diary sector, is desperate to make its mark in Asia and already has a joint venture deal with WCB.

A play for WCB would marry with the logic behind Friesland’s most recent major buy, the $500 million purchase of a milk business in the Philippines in 2012. It would also come with a similar price-tag.

21st Century Fox, News Corporation

21st Century Fox chair Rupert Murdoch has advised shareholders of plans to delist the business from the ASX.

The decision comes less than a year after News Corporation made the decision to split its operations into publishing (News Corp) and broadcasting arms (21st Century Fox).

The US-based company filed a preliminary proxy statement with the US Securities and Exchange Commission overnight to convene a special meeting of shareholders to approve the plans. The meeting is expected to take place in March or April, with the delisting to be effective around one month later, should shareholders offer their approval.

“Following the separation of our businesses in June last year, 21st Century Fox has only limited operations in Australia, and we believe that consolidating the trading of our stock in the world’s largest equity market would provide improved liquidity to the company’s stockholders and greater efficiencies for the company,” the Australian-born Murdoch said in a statement.

There was a muted response on markets, with shares in 21st Century Fox falling 1.5 per cent overnight on the Nasdaq stock exchange.

Publishing company News Corp, the owner of Business Spectator, will remain listed on the ASX.

Chi-X Global Holdings, JP Morgan Chase

JP Morgan Chase & Co has joined a long list of financial firms claiming a slice of market operator Chi-X Global Holdings.

Chi-X, founded in 2008 and now serving locally as the alternative market operator to the Australian Securities Exchange, has previously received backing from Bank of America Merrill Lynch, Goldman Sachs, KCG Holdings Inc, Morgan Stanley, Quantlab Group and UBS AG.

Details of the size and cost of JP Morgan’s equity stake in Chi-X were not disclosed.