Summary: AustralianSuper says the Future Fund and Australian Infrastructure Fund may not have acted properly in acquiring a stake in Perth Airport.
|Key take-out: There’s no risk of the deal not going ahead. The only risk is a possible delay.|
|Key beneficiaries: General investors. Category: Portfolio management.|
Australian Infrastructure Fund (AIX)
There has been further talk in the past week that AustralianSuper, one of the investors in Perth Airport, may go ahead with its threats to sue the Future Fund over its airports deal with Australian Infrastructure Fund.
Essentially, AustralianSuper is alleging the Future Fund engaged in "unlawful conduct" in acquiring Australian Infrastructure Fund's 30% stake in Perth Airport.
This is bizarre to me. I can’t really see AustralianSuper’s point. The Future Fund is actually paying a high price for Perth Airport, and the option was there for the other co-investors to outbid it. None of them took the opportunity before last week’s deadline.
The only issue that I can see for investors is that any legal action by AustralianSuper or another co-investor could possibly delay the payment due in April. Remember, shareholders are expecting to get between $3.19 and $3.23 cash, with the bulk of the pay-out expected in April, and the remainder between June and December. Australian Infrastructure Fund says it has taken independent advice on the issue and is still on track to make payment, but there is an element of risk for shareholders, which is why the share price has fallen about 5 cents.
Personally, I think this is one still worth holding on to. To me, there’s no risk of the deal not going ahead. The only risk is a possible delay.
Southern Cross Media (SXL)
Southern Cross’ share price had a bit of a run in the past week on the news of a possible deal with Nine Entertainment. Before the rumours started, the share price was around $1.56, and climbed as high as $1.74 during the week. But comments from Senator Stephen Conroy seem to have given investors the jitters, and the price fell sharply today to sit at around $1.59.
Conroy advised that the removal of the 75% reach rule would be included in a package of reforms due to be assessed by a parliamentary committee in the coming week. A merger between Nine and Southern Cross can’t proceed under the old rule, but if it is abolished then a merger could be on the cards. Conroy also advised that a Public Interest Media Advocate would be appointed to rule on mergers and acquisitions in the media industry, subject to a “public interest test”. It looks like investors are worried a deal won’t be possible or could be deemed to be not in the public’s interest and that’s why the share price has declined. But I think as a speculative buy, Southern Cross could be a good option. As I said last week, if a deal doesn’t go ahead, there’s very little downside. But if a deal is done, I think Southern Cross shares could hit the $2 mark.
Conroy’s announcement also means that, speculatively speaking, both Ten and Fairfax, and to a lesser extent, APN, are now all on the takeover radar. Every time the rules about media ownership change, there are at least a couple of takeovers. It only happens once a decade, but there is always some takeover action as a result. Right now, the most likely deal is between Nine and Southern Cross, but we could see some more changes in the near term.
Crown Limited (CWN)
Last week, there was talk that James Packer’s Crown may not require a casino licence to open a proposed $1 billion “gaming facility” in New South Wales. Speculation is rising that Crown could be awarded a gaming licence rather than a casino licence as a means of sidestepping the problem of Echo Entertainment’s exclusivity agreement, which doesn’t expire until 2019.
On that basis, I think it could be time to reduce holdings in Echo. If Crown is granted a gaming licence, Echo will no longer be as strategic an investment.
Moving on to potential takeovers, and I think utility stock Envestra could be a potential target in the coming 12-24 months. I think this is one to buy, not only for the upside that a takeover could bring, but also because it is a solid stock that delivers in the current grab for yield.
Envestra is a regulated natural gas distribution company. It owns about 22,500 kilometres of natural gas distribution networks and over 1,000 kilometres of pipelines across the country, and charges retailers a fee to transport gas through these networks. It is 33% owned by Australian Pipeline Trust, the country’s biggest natural gas infrastructure business.
The stock has risen from around the 86 cent mark to about $1.05 in the past few months. The group currently pays an unfranked dividend of 6 cents per share a year, but looking back over the company’s history, that dividend has gradually crept up as the price that consumers pay for gas has also increased. I don’t see much risk in this one and, in fact, with electricity rising steeply, gas is becoming the preferred source of fuel for many households.
As well as providing a stable dividend yield, I think eventually Australian Pipeline Trust will move to takeover Envestra. In the meantime, investors can enjoy a 6% unfranked yield at low risk, and even if a takeover doesn’t eventuate, Envestra’s returns are as close to guaranteed as it gets.
Tom Elliott, a director of Beulah Capital and MM&E Capital, may have interests in any of the stocks mentioned.
Takeover Action March 7-13, 2013
|13/02/2013||Central Australian Phosphate||CEN||Rum Jungle Resources||0.00|
|18/12/2012||Firestone Energy||FSE||Range River Gold||0.00|
|7/03/2013||Gujarat NRE Coking Coal||GNM||Jindal Steel & Power||27.79|
|12/03/2013||LinQ Resources Fund||LRF||IMC Resources||95.76||FIRB approves. Ext to Mar 15|
|4/03/2013||Neptune Marine||NMS||MTQ Corp||84.37||Unconditional|
|18/02/2013||United Orogen||UOG||Iron Mountain Mining||22.93||Unconditional|
|Schemes of Arrangement|
|24/12/2012||Avocet Resources||AYE||Lion One Metals||0.00|
|28/02/2013||Endocoal||EOC||China Yima Coal/Daton Group||0.00||Approved|
|8/03/2013||Kumarina Resources||KMR||Zeta Resources||0.00||Vote May 7|
|26/02/2013||Skywest||SXR||Virgin Australia||0.00||SCI, Singapore, approves. ACCC clears offer. Vote Mar 13|
|30/01/2013||Sundance Resources||SDL||Hanlong Mining Investment||17.99||Meeting adjourned. Date TBA|
|1/02/2013||Berklee||BER||Brett Jones - managing director||0.00||Offer to takeover certain assets|
|14/01/2013||Billabong International||BBG||Altamount/VF Consortium||0.00||Due diligence|
|19/12/2012||Billabong International||BBG||Exec Paul Naude Consortium||0.00||Due diligence|
|4/12/2012||Graincorp||GNC||Archer Daniels Midland||19.90||Revised indicative offer|
|5/03/2013||Westside Corp||WCL||Unnamed parties||0.00||Discussions continue|
|28/02/2013||WHK Group||WHG||SFG Australia||0.00||Non-binding indicative proposal. Discussions continue|