PORTFOLIO POINT: Shareholders in Echo Entertainment should expect a takeover show in some form.
Echo Entertainment (EGP).
Currently in a trading halt for a pretty hefty capital raising at a pretty big discount, Echo firmly remains a takeover target in my view.
It remains to be seen where the share price settles following the capital raising, but it might settle in the high-$3 or low $4 range. James Packer and Genting won’t go away; they’ll certainly take up their rights. I expect this will ultimately be resolved in a bid, and if not it will be Packer on the board improving the company.
Singaporean casino group Genting has also taken a stake of roughly 5%, which is just saying they expect something to happen and want to be at the table. Packer and Genting might try to work on something together, but that might not work out and it might end up hostile. However, the fact that both have come onto the register is a positive sign.
The capital raising is a bump in the road, but we’ll be taking up our rights.
Eureka Energy (EKA).
The on-market bid for Eureka has been extended until the end of June, at the same price of 45c a share. There was some talk the week before last that the company was trying to get a counter-bid, possibly in scrip, from a group called Lonestar, but they couldn’t close the deal.
Aurora (AUT), the bidder, now unconditionally owns more than 50% of Eureka, and this is basically a fait accompli. The two-week extension is mandatory for this type of bid once 50% is reached. It is trading flat at 45c.
The Eureka board have now also backed the takeover, and a lot of that has to do with the market – which has fallen in a bit of a hole since the bid was launched.
The bottom line is another bid was considered, but it didn’t succeed, and if you own Eureka shares you should sell them on-market by Friday week.
The garage door maker has responded to Dulux’s (DLX) $2 a share offer with an independent valuation range of $2.23 to $2.52.
This is an interesting situation, and most of the time I would say Dulux will end up paying a bit extra – maybe 20-25c – to get the bid over the line. But here it’s hard to say. Everybody is running into the same constraints, with shifting share prices and a difficulty in getting cash.
At the same time, Alesco hasn’t been unreasonable. To say they’re worth 10-12% more than the existing bid is not beyond the realms of possibility and I think there is still a chance of a higher bid.
If they don’t lift the bid it’s difficult to tell what it might do with the 20% stake it already owns, but I think in this case they’d hang on to it.
Alesco closed at $2.01 today, and at least there is now a range of figures to go on. If the bid doesn’t go ahead, speculation Dulux will sell down its stake would push the price down – but I’d say it’s a better than 50-50 chance it will increase the bid.
A lot has been happening at Fairfax, and the result of all this is that the company now satisfies most of my criteria as a takeover target.
Firstly, there is now a significant strategic shareholder. Gina Rinehart has increased her stake to 18.67%, and this probably justifies a board seat. She’s evidently prepared to put her money where her mouth is.
Then you have a company that many believe is trading well below its hard valuation. This is difficult as a lot of the value is in soft assets and goodwill, and I was speaking with Roger Montgomery who said he doesn’t think it’s worth 65c – where it closed today.
Fairfax has also sold another 15% of Trade Me, and frankly I think they should sell the whole thing. It’s a really good asset and it’s separately listed – but it doesn’t have much connection with their other businesses.
One thing to watch for is changing legislation – the government is looking at changing media ownership rules, which might allow or disallow certain people to buy Fairfax. It just doesn’t seem likely any existing media group either would or could bid for it, and there’s no private equity like there was for Seven and Nine. No Rupert Murdoch; no Fairfax cousin riding to the rescue. But it is looking increasingly like a target.
There has been a bid increase here, but not one to write home about – from $1 a share in cash, Whitehaven (WHC) has now added the look-through value of its holding in Orpheus Energy (OEG) shares currently worth about 2.5c extra per share.
The fact that Coalworks rejected the $1 and is now accepting $1.025 is more a reflection of the volatile markets and the more favourable view of cash bids. Shareholders and senior management – about 15% of the shares – have said they will accept, so if you take it up you’ll definitely get the money now. It’s a small increase, and it’s cost them practically nothing because there’s no extra cash.
Out of all this, however, has come talk that Nathan Tinkler could bid for Whitehaven, which he just sold Aston Resources into. There’s nothing firm here yet. He already owns a chunk of Whitehaven, but I suspect he’s either doing it with somebody else or it’s a scrip type of bid. I wouldn’t recommend buying into Whitehaven until we know how serious this is, and what it is.
Sundance is also doing a capital raising at a big discount, and yet by the same token they’re still saying they expect to conclude an agreement this year with Sichuan Hanlong.
I don’t see this takeover happening. I might be wrong, but to say “we’re going to take money at 34.5c a share” and then expect a bid to go through at 57c a share in November – it just doesn’t work like that.
At best I would have thought they’d lower the bid price by the value of this capital raising. At worst I think they just walk away. But the idea of issuing shares at one price, and having a buyer waiting in the wings to pay a much higher price for them, I just find ludicrous.
Flinders Mines (FMS).
Finally, there’s an Australian shareholder trying to apply to the Takeovers Panel to get the end date for this deal extended beyond June 30 (see previous coverage here, and here. That’s not going to happen.
The fact is, the two companies made that agreement, and, sure, all sorts of things have happened but they agreed on June 30 after this court action started. Some people are desperate at the moment, and some of the conspiracy theories I’ve seen about this deal are vast and dark – it’s just silly.
It’s not going ahead. I said get out weeks ago, and that’s been the right call.
Tom Elliott, a director of Beulah Capital and MM&E Capital,may have interests in any of the stocks mentioned.
|-Takeover Action May 28-June 1, 2012|
|Wah Nam International||
|Closing Jun 14|
|13/06/2012||Castlemaine Goldfields||CGT||Lion Selection||11.40|
|Aurora Oil & Gas||
|Closing Jul 15|
|Ext to May 10|
|31/05/2012||Norton Gold Fields||
|Zijin Mining Group||
|15/06/2012||Orion Metals||ORM||Conglin Investment Group||19.80|
|17/05/2012||Real Estate Capital Partners USA Property Trust||
|Woolley GAL II||
|19% pre-bid agreement|
|Brookfield Asset Management||
|Schemes of Arrangement|
|Yancoal (Yanzhou Coal)||
|Pacific Equity Partners||
|Vote late Jul|
|Hanlong Mining Investment||
|Non-binding indicative offer|
Source: News Bites