Game on for Macarthur Coal

Macarthur Coal. One of the market's last remaining independent coal companies is “in play” after Macarthur Coal announced to the ASX today (April 21) that an unnamed “third party” has made an approach to the company. The statement, which was scant on detail, clearly indicated a third party had made a bid for the 24% stake in the group held by former chief executive Ken Talbot. The announcement followed intense speculation surrounding the future of the coal company after it was reported that Talbot's stake was for sale. “Discussions with the third party are incomplete, non-binding and conditional and no formal written offer has been made,” the company said.

Coal is one of the hottest commodities around and Macarthur is a good coal company. It has good contracts, so if Talbot does want to sell his stake there’s every chance that it could lead to a full bid for the company.

We can’t be certain, but Xstrata, Rio Tinto and any number of British coal companies could have sparked Talbot's decision to flag a potential sale. They’ve already bought quite a few other coal assets here in Australia and Talbot will likely be hawking this far and wide. It's very early days yet on this deal, but we'll keep a close eye on the action. Talbot has recently emerged as a backer of Sundance Resources, an ASX-listed Cameroon-based iron ore exploration company.

Tattersall’s/Tabcorp. Another prospective takeover target is Tattersall’s. Both Tabcorp and Tatt’s have been hit pretty hard by the Victorian Government’s decision to end their pokies duopoly and obviously the whole issue of whether or not they’ll get compensation will keep lawyers and the courts occupied for some time to come. Tabcorp and Tattersall’s would never have contemplated merging before, because the ACCC and the various state regulators for gambling wouldn’t have allowed it, but now it could be a different story. Tabcorp is probably the stronger of the two, so would be the one making an offer, but it’s not for certain. If you put the two companies together they would both end up controlling all the horse racing along the east coast so although the Victorian and New South Wales wagering businesses are also up for grabs after 2012 and 2013, it’s still possibly one for the regulators.

Some say Centrebet could also be up for grabs, but the problem with Centrebet, and any of the other betting agencies, is that they are competitors of Tattersall’s and Tabcorp’s wagering assets. I guess if they lost their wagering assets they might want to have a look at Centrebet, but some of the legislation in different states prevents you from owning wagering and online gaming. Betfair is otherwise another one, as is Mark Reid’s International All Sports based in the Northern Territory. Sky City in New Zealand, which owns the Auckland and Adelaide casinos, is also a potential.

Insurance Australia Group/QBE Insurance. A QBE deal to take over IAG could be the last big merger in the Australian insurance industry after Suncorp’s takeover of Promina. It’s not a formal bid yet but just an indicative offer. This offer only values the company at around $4 a share and QBE is obviously saying that it’s like a merger of equals, but in reality it isn’t. It will be hostile. This means a premium will have to be paid. Now, while IAG’s share price has been absolutely hammered in the past year or so, I don’t think QBE will be in any hurry to raise its offer. From my understanding, IAG is not the best-run company and a lot of fat can be trimmed. Yet IAG can be regarded as a strategic asset and it’s the last chance to buy a big lump of insurance assets in Australia because I doubt the ACCC will allow any more insurance mergers after this. As for how to play this, QBE is currently trading cheaper than IAG, and although that’s not unusual in a takeover, personally, I’d just wait until IAG drops in price and I’m not worried about competing bids in the meantime. There are cheaper mergers you can buy into at the moment.

Australian Worldwide Exploration/ARC Energy. One of those cheaper mergers is between long-standing joint venture partners AWE and ARC Energy. The companies work together on a couple of projects in the Canning Basin in WA. ARC is run by a very good chief executive, Eric Streitberg, who I’ve dealt with on and off over the years, but their big problem is that they just haven’t had much exploration success. Although they have had some good production oil and gas assets and make a nice cash flow from those, the cash flow that’s pumped into exploration just hasn’t paid off yet.

As is so often the case for resource takeovers, it’s a joint venture partner so although AWE is now doing formal due diligence on ARC, they have agreed to a friendly merger and AWE already knows half the ARC assets because it’s a partner in them. No deal terms have been announced, but I see no reason why this merger wouldn’t go ahead and I’m actually surprised that ARC is only trading in the mid-$1.30s. From what I’ve heard, the agreed price will end up being well into the $1.50s. The only problem is we don’t know if it’s cash or shares or a mixture of the two.

Zinifex/Oxiana. Another resources merger under way is, of course, Oxiana’s bid for Zinifex. Zinifex shares have been trading as much as 6% below the value of the Oxiana offer and that spread has started to emerge in the past couple of weeks. As I’ve said many times, this is a good one to get on to. The reason it is trading at a discount is because there have been many rumours that someone was going to make a bid for Oxiana, particularly Xstrata. I don’t believe that’s going to happen, but either way it won’t actually stop the Zinifex bid as it’s not up to Oxiana shareholders. Pundits say the merged entity will be a powerhouse. It will be run by Andrew Michelmore, who is a very capable executive despite the fact that some would prefer Oxiana chief executive Owen Hegarty, who is nevertheless staying on the board. I would play this by buying Zinifex and short selling Oxiana to buy that discounted spread.

Herald Resources. There have been some developments on this front. Bumi, which is the under bidder, has only bid $2.25, but it has raised capital now from its bankers and paying fees on it. So why would Bumi have done this if it was not planning to lift the bid? Herald’s stock closed at $2.85 on Friday, so Herald is a very interesting situation. Antam, currently the top bidder at $2.50, has approval from its shareholders to proceed, but what is interesting is that both Bumi and Antam have had an external valuation report done, valuing Herald up to $3.51 a share. Effectively this means they could both increase bids. That’s the reason the stock’s trading at a large premium, but nonetheless this isn’t one that we would invest in at the moment.

Rio Tinto/BHP Billiton. There were several rumours out of the UK last week, and Rio, which has been trading at a normal 3% discount in the last couple of weeks to BHP, suddenly shot up to parity. Nevertheless, that was only to parity with the existing bid of 3.4 BHP shares for every Rio share, so the market’s not really saying there’s going to be an increased bid. Having said this, I think BHP will ultimately lift its offer one more time and it will do it in agreement with the Rio board. It will probably involve some cash to go along with the all-scrip offer currently on the table, but it might just wait until all the regulatory approvals are in place. Tom Albanese, who runs Rio, has already indicated that he’s not averse to doing a deal, but it just has to be a deal at the right price. We’re maintaining a long position in Rio because an increased bid could happen.

Dyno Nobel/Incitec Pivot. Last but by no means least is this very interesting deal. With the price of both companies just shooting up, some say you should do what’s called a “Luigi” with this trade. A Luigi is an old derivatives market trade where instead of going long the target and short the bidder, you just go long on both. While you are doubling up your exposure, China put a big export tariff on all its fertilisers last week and there’s a global shortage of agricultural commodities, so conditions are good. Incitec Pivot will certainly benefit from the current situation and that’s the reason it’s buying Dyno and the deal is almost certain to go ahead. The companies would be insane not to do it and I think it will be complete in about six weeks.

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

nTakeover Action April 14-18, 2008
Date	Target	ASX	Bidder	(%)	Notes
16/04/08	Allegiance Mining	AGM	Zinifex	84.52
09/04/08	Chariot	CTI	TPG/SP Telemedia	70.60
16/04/08	Babcock & Brown Environmental Investments	BEI	Babcock & Brown	96.85	Extended to April 18.
11/03/08	Challenger Infrastructure Group	CIF	Consensus Business Group	0.00
25/03/08	Dolomatrix	DMX	Transpacific	22.70
11/04/08	Golden West Resources	GWR	Fairstar Resources	32.97	Extended to May 11.
17/04/08	Herald Resources	HER	PT Bumi Resources	19.84	Recommendation withdrawn in favour of PT Antam offer. Closing May 7.
30/01/08	Herald Resources	HER	PT Antam and Shenzhen	11.00	Recommended offer.
09/04/08	Jetset Travelworld	JET	Qantas	0.00	Potential 58%, subject to Jetset vote late May. Cleared by ACCC.
02/04/08	Just Group	JST	Premier Investments	23.67
19/03/08	Lion Selection	LST	Indophil Resources	0.00
31/03/08	Midwest Corporation	MIS	Sinosteel	19.89	Offer formalised.
01/04/08	Mineral Securities	MXX	CopperCo	0.00	Despatch of offer documents June 7.
17/04/08	Olympia Resources	OLY	Territory Resources	53.43
27/03/08	Programmed Maintenance	PRG	Spotless Group	13.20	Incl 10.3% pre-bid acceptances.
06/02/08	Rio Tinto	RIO	BHP Billiton	0.00	Offer formalised.
nScheme of Arrangement
18/04/08	Anzon Australia	AZA	Nexus Energy	53.10	April 18 vote adjourned. Date TBA.
26/03/08	CBH Resources	CBH	Perilya	0.00	No vote date set.
15/04/08	China Education	CEH	Raffles Education	90.98	Vote April 24.
11/03/08	Dyno Nobel	DXL	Incitec Pivot	0.00	No vote date set.
09/04/08	Ellendale Resources	ELL	Hawthorn Resources (prev Great Gold Mines)	0.00	Vote May 15.
20/03/08	Equigold	EQI	Lihir Gold	9.17	No vote date set.
18/04/08	Great Artesian Oil & Gas	GOG	Drillsearch Energy	0.00	No vote date set.
10/04/08	Macquarie Private Capital	MPG	Bear Stearns Private Equity	0.00	Vote May 19. Macquarie expects offer to proceed.
02/04/08	Uranium King	UKL	Monaro Mining	0.00	Vote likely May 22.
03/03/08	Zinifex	ZFX	Oxiana	0.00	Vote May/June.
nBackdoor Listing
31/03/08	Global Approach	GLO	Teys	46.70	Revised proposal.
nForeshadowed Offers
05/03/08	Aquila Resources	AQA	AMCI	0.00	AMCI requested the register.
03/04/08	Atech Holdings	ATH	New major shareholders	32.54	Board seeking intentions of new shareholders.
10/12/07	Atlas Group	AHS	Unnamed parties	0.00	Investigations advance, but no offer yet.
05/11/07	Blue Energy	BUL	Sydney Gas	0.00	Discussions.
16/04/08	Independent Practitioner Network	IPN	Sonic Healthcare	71.50	Proposed move to100%.
15/04/08	Insurance Australia Group	IAG	QBE Insurance Group	0.00	Proposed scheme.
29/02/08	Mark Sensing	MPI	Unidentified party	0.00	Merger talks proceeding.
05/12/07	Mirvac Group	MGR	Lend Lease Corp	0.00	Talks confirmed.
01/04/08	Mount Gibson Iron	MGX	Shougang Concord	0.49	Takeovers Panel reverses 19.73% acquisition.
14/03/08	Trust Company	TRU	Equity Trustees	0.00	Talks confirmed.
28/02/08	Warehouse Group	WHS	Woolworths	0.00	Agreement on suspension of NZ Commerce Commission clearance order till May 1 appeal.
28/02/08	Warehouse Group	WHS	Foodstuffs Co-operatives	0.00	Agreement on suspension of NZ Commerce Commission clearance order till May 1 appeal.

Source: NewsBites