DataRoom AM: Virgin table talk

The jostling for position among Virgin Australia’s big-name shareholders continues, with Etihad Airways chief executive James Hogan keen to join the ASX-listed group’s board. Virgin isn’t the only Australian airline making news, however, with Qantas still creating headlines as it looks to shore up its balance sheet. Speculation continues to mount over a possible partial float of its frequent flyer division, but could it hope to receive a valuation that befits the division’s size and growth prospects?

Elsewhere, Macquarie Group distances itself from rumours of a purchase of a division of Goldman Sachs, Woodside Petroleum makes a play for land in Canada and Saputo inches closer to concluding the long-running takeover battle for Warrnambool Cheese and Butter.

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

One of Virgin Australia's major shareholders is looking for it to make good on the promise of a board seat to each of the airline’s three major shareholders.

Last year Virgin said it would likely offer a seat at its boardroom table to Etihad Airways, Air New Zealand and Singapore Airlines in a gesture of goodwill, given the amount of financial support the three firms had offered.

The first to take the company up on the offer is likely to be Etihad, with the Abu Dhabi-based airline’s boss, James Hogan, keen to claim a position at the table himself, according to the Australian Financial Review.

“I will sit on the board,” he told the paper.

“I am an Australian. I know the market. I’ve been in aviation since 1975. Maybe I can add some value.”

The development comes just days after Virgin's other two big shareholders – Air New Zealand and Singapore Airlines – signed a codeshare agreement.

Such a deal would have piqued the interest of Etihad given Air NZ and Singapore could combine to claim an almost 50 per cent stake should they harbour any plans to take Virgin private.

Hogan has dismissed the deal as a non-issue for his Abu Dhabi-based company, arguing that its deals with both Virgin and Air NZ remain watertight.

Whether that deal played any role in the reported boardroom move or not, the fact Hogan will represent Etihad shows just how highly the Middle East-based group values its interest in Virgin.

Meanwhile, speculation is mounting on the prospect of a partial float of Qantas Airways’ Frequent Flyer division. According to the AFR, Macquarie Securities and Citi are likely to advise the company should a deal go ahead.

But the prospect of a float remains optimistic, especially as Qantas has offered no hint it would pursue such a move.

On the most recent valuation for the Frequent Flyer division of an airline, Qantas’ frequent flyer operations could be worth as much as $3.5 billion. Analyst views, on the other hand, run largely around $2.5 to $3 billion.

Given the expectations are for a float of 49 per cent of the business, this would see Qantas receive around $1.2-$1.5 billion through the listing.

However, it’s hard to see a troubled firm that is worth just $2.4 billion receiving such a valuation for one division of its business.

Given the risk of undervaluation and the fact the division is the company’s most consistent strong performer, expect a float to be a move of last resort and, even then, perhaps a divestment of around 15-30 per cent (instead of 49 per cent) would be the wiser option.

We shall know more when the national carrier updates the market on its strategic review in February.

Macquarie Group, Goldman Sachs

Macquarie Group has poured cold water on expectations it is set to buy Goldman Sachs’ uranium trading desk.

Reuters reported last week that a deal had been secured, but Macquarie has since denied the speculation. It did, however, leave the door open to a deal in the near future.

Goldman put its uranium trading desk on the market in November as part of a broader push from US-based banks to cutback on commodities trading as regulations become stricter.

The move has seen Morgan Stanley offload its oil trading business in December to Rosneft, while JPMorgan is set to divest its commodities business for around $US2 billion ($A2.25 billion).

Macquarie is seen as a frontrunner for JPMorgan’s operations as well, with expectations that it is a three-horse race ahead of final bids this week.

Private equity firm Blackstone Group and trading house Mercuria are the other two parties seen challenging Macquarie on the deal.

Macqurie is rumoured to be connected to most commodities deals at the moment due to its focus on expansion in that area, though its more cautious approach since the GFC suggests it may be unlikely to buy both JPMorgan’s commodities operations and Goldman’s uranium desk in the space of a few weeks.

Woodside Petroleum

Woodside Petroleum is clearing the way for expansion in Canada, signing an agreement with the province of British Columbia for the exclusive rights to negotiate a long-term tenure for a liquefied natural gas facility.

The second agreement between the two parties could be the precursor to Woodside building an LNG export facility near Prince Rupert in the province.

There currently is a lot of activity in the region, though while there appears very good prospects for developments, it is still early days.

Still, it’s a nice result for Woodside as it beat out proposals from South Korea’s SK E&S Co and ExxonMobil’s Canadian unit.

Meanwhile, there has been renewed speculation that Royal Dutch Shell could soon offload its 23 per cent stake in Woodside after the oil major announced a major profit downgrade on Friday night (Australian time).

The risk of the Australian dollar falling further, the recent positive reactions to block trades in ASX-listed companies and a desire to rid itself of non-core assets should see Shell head for the exit soon. A sale will, however, require the market to stay strong given the $7.5 billion-plus value of Shell’s shareholding.

Elsewhere, there is still no news on Woodside’s planned entry into the mammoth Leviathan offshore gas field. The Australian firm announced plans to claim a stake in the Israeli venture over a year ago, but no firm agreement has been finalised despite assertions a deal may be imminent.

Warrnambool Cheese and Butter, Saputo

Saputo is creeping closer to victory in the protracted bidding war for Warrnambool Cheese and Butter.

The Canadian dairy firm announced on Friday that it had surpassed 46 per cent acceptances, meaning a majority stake – and effective control – is well within reach.

The suitor, which has been fighting Australian dairy competitors Bega Cheese and Murray Goulburn, made the decisive move last week when it negotiated to buy the 18.8 per cent stake held by Bega.

Time is still a pressing issue, with Saputo needing to reach 50 per cent by Wednesday so it can extend its proposal by another two weeks. Should it not reach that mark, it will be forced to close the offer at that point.

However, 50 per cent stake appears assured.

Sonic Healthcare

The Australian Competition and Consumer Commission has stepped in to block Sonic Healthcare’s planned acquisition of Delta Imaging.

The competition watchdog flagged concerns about the deal in December and confirmed it would oppose it on Friday.

Despite the ACCC making clear strong fears about the proposed deal, it is a minor surprise that the acquisition didn’t get its blessing given Delta is in liquidation. In the past the ACCC has shown a willingness to permit deals despite competition concerns because the takeover target was in a severe state of financial distress.

Given Sonic has scarcely mentioned the acquisition, it is unlikely to feel too aggrieved.