DataRoom AM: Warrnambool churn

The fight for WCB intensifies with speculation over new players, while Woolworths' ParkNShop play proves a bridge too far.

The fight for control of Warrnambool Cheese and Butter has intensified after major shareholder Murray Goulburn lobbed an offer the group’s way. The move ensures there’s a three-way race for the Victorian dairy firm, but could a fourth, or even fifth, player emerge and take the prize? Meanwhile, Woolworths scraps its bid for a major presence in Hong Kong, the Nine Entertainment float shapes up as the biggest on the ASX since 2010, RHG commits to a suitor again and James Packer looks longingly toward Sri Lanka.

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

The Warrnambool Cheese and Butter board is being offered something new to think about by its suitors every week. This time, it’s the re-emergence of a familiar bidder, Murray Goulburn, which had kept quieter than a dead fly until Friday.

Murray, which tried unsuccessfully to capture WCB in 2009-10, has raised the stakes in what is now a three way tussle. The group’s $7.50 a share bid trumps the proposals of Canada’s Saputo and local rival Bega Cheese, the company that kick-started the whole process in early September.

The initial Bega bid valued WCB at $319 million and already we have moved to $420 million via the latest offer.

The next step, many believe, will be a revised proposal from Bega before Saputo will likely launch a counterbid of upwards of $8, which may blow the Aussie firms out of the water.

There are also rumours of interest from New Zealand giant Fonterra, which would turn this into a bidding war, if it isn’t already. According to The Australian, Japan’s Megmilk Snow Brand has also been rumoured to be keeping an eye on proceedings, though with a market cap of $1 billion, it is much smaller than Saputo and Fonterra.

Investors definitely expect more to come, sending WCB shares over 6 per cent higher on Friday to $7.89, well above the current bid levels. At the current market price the group is a staggering 75 per cent above where it was the day before the first bid.

Bega and Murray are both desperate to ward off any fresh offshore rivals with the domestic dairy market in need of consolidation, not new entrants. But Saputo undoubtedly has more firepower, and expect it to win the day (unless the Fonterra speculation proves correct).

Bega and Murray Goulburn, meanwhile, can take the profits of their healthy stakes in WCB and move on to the next challenge: fighting off the new competitive threat. In time they may both be in the sights of Saputo, which is desperate to take advantage of the opportunity in Asia.

Woolworths, ParkNShop

What shaped as the biggest business move for Woolworths since its decision to compete with Bunnings ended up no more than a cautious dip of the toe. As we reported last week, Li Ka-shing, the richest man in Asia, was looking for close to $4 billion for his ParkNShop supermarket chain in Hong Kong. Woolworths, meanwhile, was reportedly prepared to offer around $3 billion.

It seems the bridge in valuation was too long to cross for the Aussie retailer and also for the other suitors, with the owner of ParkNShop – Hutchison Whampoa – since abandoning the sales process.

Woolies first indicated back in April it would look to expand offshore, though in June boss Grant O’Brien elaborated on the vigilant approach the group would take.

"We'd never bet the balance sheet on doing something we're not entirely confident about,” he said.

As it turns out Woolworths wasn’t convinced the growth opportunities in a fairly saturated market nor the synergies created were worth stretching the balance sheet.

It does, however, spotlight Woolworths’ desire to look for new opportunities beyond the local grocery sector where its options for growth are limited by regulatory constraints. The group’s management realises the Asian retail sector has the potential to be the most lucrative in the next decade, but it is also not keen to start from scratch in the region given the challenges in adapting to a different market. You only have to look at grocery giants Wal-Mart and Tesco to understand the risks.

Now Woolies has flagged its intentions in the region, however, don’t be surprised to see a deal done in the next year or two.

Nine Entertainment

It now appears almost certain Nine Entertainment’s float in December will be the biggest on the ASX since 2010.

According to Macquarie Bank, a listing should value the group between $2.46 and $2.93 billion, which would make it worth more than Seven West Media. Fellow lead manager on the IPO, Deutsche Bank, meanwhile, has a slightly more restrained valuation range of between $2.48 and $2.79 billion.

Regardless, it’s a big deal and arguably the jewel in the crown of a number of imminent floats.

The exact make-up of the listing remains up in the air, with details of ownership structure undecided. It is believed the group’s AGM today will lead to decisions from its shareholders on how much they each plan to sell into the float. It is likely around a third will be on offer.

Investors have reason to be wary, however, with concerns around the debt load and the risk of new competition through the likes of Netflix in coming years. Still, it’s nice to have a bit of buzz back in the market because, if nothing else, it helps this column out immeasurably.

RHG, Cadence Capital, Pepper Australia, Resimac, AMAC

The board of home loans group RHG Limited has again showed its support for the Resimac/AMAC consortium in what has become a drawn out bidding process. Resimac first received board approval in August before two upgrades to the challenging bid from Pepper Australia and Cadence Capital put a question mark over the deal.

For now, last week’s fresh 50.1 cents a share proposal from Resimac (0.6 cents more than that agreed in August) looks like it will be enough to get what is left of RAMS Mortgage Group.

The RAMS brand was purchased by Westpac in 2007.

Crown, James Packer

James Packer’s Crown has confirmed its interest in Sri Lanka, outlining plans for a 450 room 5-star resort and casino in Colombo. Packer himself was in the Sri Lankan capital to press the flesh of government officials and potential joint venture partners just over a week ago.

The local government said over the weekend that no casino licence had been handed to Crown, with the Australian casino operator to instead pursue a JV with one of the four licence holders in the country.

Still, Packer is meeting some resistance in the country, with the opposition arguing he is set to receive tax concessions for the project when it should be the other way round.

Should it be given approval, the cost of the project is expected to be around $US400 million.

Privatisation, Defence Housing Australia, Australia Post

Defence Housing Australia is being considered for privatisation, according to The Australian Financial Review.

The business, which provides housing to members of the Defence Force and their families, is not the most glamorous of the possible government floats, but it could reap a significant payday for Treasurer Joe Hockey. The big two to keep on the watchlist are Australia Post and Medibank Private, but neither is likely in the near term.

While Hockey would be tempted to offload Australia Post given the success of the Royal Mail float in Britain, recent troubles with the group’s traditional mail services division spell risk to investors. A new owner would like to scale back this service but the government will risk public backlash if it allows such a move.

There is also the issue of personal data, but it’s amazing how that issue seems to fade away for a seller when billions of dollars are thrown their way.

Despite losses in the traditional mail division, the group still netted the government a tidy $244 million dividend last year, its largest since 2008.

Wrapping up

Quadrant Private Equity is gearing up for a $450 million float of Burson Auto Parts, according to the AFR. With the IPO market running hot, Quadrant is confident it can reap a substantial profit on its $150 million purchase price in 2011. Elsewhere, Medical devices supplier Life Healthcare is planning a $100 million float before the end of the year, according to the AFR. The Crescent Capital Partners-owned group is being shopped around to potential investors by UBS.

In resources, Queensland copper explorer Cudeco has edged a step closer to mining, arranging a $US100 million facility with Mingsheng Banking Corporation that should be enough to see it through until revenue flows from its flagship mine in Cloncurry. The move was well received by the market, with shares in the group rising the most of any listed in the ASX200 on Friday.

Finally, former JP Morgan exec Kevin Andrews has agreed to merge his advisory firm, Momentum Corporate, with Miles Advisory Partners, according to the Wall Street Journal. The businesses reportedly have enterprise values of up to $30 million.

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