Disconnecting Austar

PORTFOLIO POINT: New ACCC concerns over Foxtel’s bid for Austar are unlikely to derail the takeover, but will create yet another delay.

Austar United Communications (AUN). The 10 months since Foxtel made its $1.52/share bid for Austar (not including the lengthy period it spent leaking the idea to the media) have been laden with regulatory mines. And just as we thought the path ahead was mostly clear, the ACCC has apparently flagged more concerns – but this time they have nothing to do with the theoretical potential for competition between Foxtel and Austar.

Now the regulator is worried that Telstra’s 50% shareholding in Foxtel will give it disproportionate leverage over internet protocol television (IPTV) and will reduce competition in the undeveloped sector. Presumably, the qualms are over Telstra’s dominance as an internet provider, combined with its large stake in a company with the ability to transform into a big IPTV provider.

It’s unlikely, but the ACCC could force Telstra to make an undertaking to sell part or all of its stake in Foxtel in order for the deal to go ahead.

Nevertheless, I doubt this is a big issue but it’ll cause yet another delay. Austar could go ahead with its shareholder vote on Friday, but then it would still need the regulatory nod before April 5, when it has the second court hearing to have the scheme of arrangement approved.

Austar’s share price slumped a couple of cents on the news and finished the day at $1.47, a 3.29% discount to the bid.

National Can Industries (NCI). It’s no Ludowici, because there’ll be no increase in the bid, but an in-house offer for National Can Industries will make investors a very reasonable return.

National Can Industries managing director Michael Tyrrell – and 50.9% owner up until last week – has made another tilt for the company he’s managed since 2000, with a generous $1.84 cash offer. The last time Tyrrell tried to take the company over, in 2003, Raphael Geminder (married to the sister of Amcor CEO and chairman Anthony Pratt) bought a 20% blocking stake and refused to allow the deal to go ahead.

This time, Geminder has been persuaded to sign his stake over to Tyrrell (who as of March 20 is a 70.1% shareholder of National Can) and the rump group of minority investors is being flushed out with the lavish offer, which is a good 79% higher than the pre-offer share price and a level not consistently seen since late 2007.

With Tyrrell’s foot firmly on the throat of the company register, 75% of the remaining shareholders have to vote in favour of a scheme of arrangement. Unless one of the independent directors decides the premium isn’t good enough, it’s unlikely there’ll be a delay because the board has already agreed to the offer, and the takeover will be over by the timetabled date of July 31. It does need ASIC approval, because the takeover plan involves Tyrrell’s company ESK loading the National Can balance sheet with debt in order to fund the acquisition, but there doesn’t seem to be much concern that it’ll be withheld.

With National Can now trading at $1.78, you’ll make 6c in four months, and an annualised return of about 10%.

Viterra, GrainCorp (GNC). The ACCC has suggested it might poke around in the $6.2 billion takeover of Canadian grain handler Viterra – which owns local company ABB Grain – but it’s unlikely there’ll be competition concerns here and doubtful that it would have an impact on my favoured way to play this deal, GrainCorp.

Glencore is the bidder and plans to sell bits off to Agrium and Richardson International. I think the ACCC wants to look at it because the now-bought local players are still very monopolistic in some ways, despite being deregulated. ABB Grain, for example, still dominates the Australian barley market, but it still competes strongly against AWB and GrainCorp.

So the competition regulator won’t be much of a problem in a Graincorp takeover (unless the buyer also owns a competitor here). The biggest trial will be the Foreign Investment Review Board, because the most likely suitor for GrainCorp will be an offshore company, probably from North America.

Transurban Group (TCL). Toll road company Transurban fulfils almost every one of my takeover target criteria, and the fact that the Future Fund has just climbed a little bit further in doesn’t hurt.

In 2009 and 2010, Transurban rejected two joint offers from Canadian Pension Plan Investment Board (CPPIB), the Ontario Teacher’s Pension Plan (OTPP) and CP2 – one for $5.25 and the next for $5.57. The Future Fund was involved in talks during the 2009 offer to join the Canadians in the acquisition; it can’t make offers by itself, but it is allowed to join joint bids.

Now the Fund has lifted its stake to 6.78% after a frustrated CP2 started selling down its 12.57% holding. Transurban is definitely a target with its now even-larger strategic shareholder (who’s already proven once that it could be a willing seller if the price is right), monopolistic income-generating assets and takeover history.

Henderson Group (HGG). It’s a tiny listing in Australia, but European-focused wealth manager Henderson may be one to watch in the acquisition sphere.

Last week, there were reports in the UK press that an indicative offer of 200-220 pence (about $A3) was in the offing. Henderson was trading around $1.90 at the time and is back there now, as it was only a rumour.

Henderson was once part of AMP but was demerged in 2003, hence why there is a small number of shares left on the local exchange. It’s mostly based in Europe – and we all know how difficult things are there – and being a large sector, there are far more fund managers that companies could buy if they wanted to consolidate in that region.

But the reason you’d watch it is if you think that Europe is on the road to recovery. After all, there’s often no smoke without fire. My picks in this space are closer to home, with IOOF the most likely one to be swallowed in the small, crowed local market of wealth managers.

Tom Elliott, a director of Beulah Capital and MM&E Capital, may have interests in any of the stocks mentioned.

-Takeover Action March 19-23, 2012
Date	Target	ASX	Bidder	(%)	Notes
1/03/12	Accent Resources	ACS	Xingang Resources	60.65
21/03/12	Brockman Resources	BRM	Wah Nam International	75.74
22/03/12	Extract Resources	EXT	Taurus Minerals	82.46	Kalahari offer unconditional
16/12/11	Gold One International	GDO	BCX Gold Investments	82.8	Unconditional
15/12/11	Hastings Diversified	HDF	APA Group	20.71
22/03/12	Living and Leisure	LLA	Merlin Entertainments	97.66
21/03/12	Magma Metals	MMW	Panoramic Resources	12.02	Ext to Apr 19
20/03/12	Signature Metals	SBL	LionGold	61.62	Ext to Mar 16
22/02/12	UCL Resources	UCL	Minemakers	13.1
	Schemes of Arrangement
9/03/12	Aston Resources	AZT	Whitehaven Coal	19.99	Vote Apr 16
10/02/12	Austar United Communications	AUN	Foxtel	0	Vote Mar 30
21/02/12	Auzex Resources	AZZ	Bullabulling Gold	0	See GGG Resources - 50/50 merger. Vote Mar 22
15/02/12	Flinders Mines	FMS	Magnitogorsk Iron and Steel Works	0	Vote Mar 30
21/02/12	GGG Resources	GGB	Bullabulling Gold	0	See Auzex Resources - 50/50 merger. UK court hearing Mar 8
6/03/12	Gloucester Coal	GCL	Yancoal (Yanzhou Coal)	64.5	64.5% holder Noble Group in favour
11/10/11	Sundance Resources	SDL	Hanlong Mining Investment	17.99
Reverse Takeover
17/02/12	Millepede International	MPD	Angline Pastoral Pty Ltd	0	Angline and shareholders to control 67.6%. Vote early May
Foreshadowed Offers
28/02/12	Goodman Fielder	GFF	Wilmar International	5.00-	Press speculation
16/02/12	Ludowici	LDW	FLSmidth	22	Indicative 22% support for proposed scheme
14/03/12	Ludowici	LDW	Weir Group	0	Indicative proposal withdrawn
6/02/12	Spotless Group	SPT	Pacific Equity Partners	19.64	Non-exclusive due diligence

Source: News Bites