Has Tinkler's horse bolted?

PORTFOLIO POINT: Nathan Tinkler is borrowing money against personal assets. This raises questions about his huge debt-funded plan to buy Whitehaven Coal.

Whitehaven Coal (WHC).

If you can believe anything that’s been written over the past few days, Nathan Tinkler’s empire is crumbling quite rapidly. It seems he’s seriously short of cash, and, this is the thing, he’s already borrowed a lot of money to buy racehorses and cars and things against his Whitehaven stake.

He was supposed to put $28 million into Blackwood Corporation for a 33% stake in the coal minnow, but failed to meet a deadline that was already extended for him. That probably isn’t happening and now, apparently, he’s borrowed $20 million from Gerry Harvey against the sale of some racehorses, having offered his entire racehorse empire to some Saudi Arabian sheik. Then today came allegations of unpaid super benefits to workers with those racehorses.

If this is true, this is not someone who’s in a good position to be pulling off a big debt-funded deal at the moment. As I’ve said in the past, if you look at what’s happening to commodity prices, they’ve been heading south, and I just think the chance of this deal happening is declining rapidly.

From what I’ve read, it sounds to me as though Nathan Tinkler is not in a strong position at the moment, and if he has to borrow $20 million from Gerry Harvey to keep himself going, then his ability to source a couple of billion in finance has got to be quite limited.

Hastings Diversified Utilities Fund (HDF).

There’s more good news for investors in the battle for HDF, as APA has come back with a revised bid for the second time.

APA, which had its mostly-scrip bid countered last week with a raise in PPA’s all-cash bid to $2.43, has increased the cash component of its offer. Basically it’s now 0.39 APA shares plus 72 cents cash, and with 90% acceptances it’s 0.39 plus 80 cents – so you get an extra 8 cents, or 3%. At APA’s closing share price on Friday that makes the bid worth $2.54, or $2.62 if it gets to 90% acceptances.

The board has said PPA’s now got two days again to match that, and I still believe that PPA can probably squeeze out one more increase. I changed my view to favour buying in the low $2.50s last week, and that has paid off, and I suspect there’s probably just a little bit more in it.

Obviously, there’s a point where both of them won’t go any higher, but I think if you own the stock at the moment you should hang in there, because there’s still a possibility of at least one more bid and possibly two. Just how high PPA would have to increase its bid depends – it has, in the past, increased to a bit below the APA offer, saying ‘our offer is all cash’, but it gets a bit difficult.

I think APA could probably go a bit higher again, and notice that it’s increasing the cash not the scrip, because it knows if it increases the scrip its own share price could get hit. I think it could offer a bit more cash, but it’s getting up there.

Where it tops out, we don’t know, but you might as well hang in there because the share price is very close to the value of the bid. That means you’re not going to lose anything at this point and you still might make some more.

Alesco (ALS).

The drawn-out battle for control of garage door-maker Alesco by Dulux (DLX) is getting closer to crunch time, but a trading halt last week for further negotiations hasn’t changed much and I still think it’s more of a sell than a buy.

Alesco’s share price has gone ex-dividend, though the stock has recovered almost to the pre-dividend price. The value of the bid at the moment is $1.90, plus the 15 cent dividend which has now been paid, and the stock is trading at $2.01 – above the bid.

The two companies remain in negotiations, as Dulux has suggested Alesco makes a further 60-cent fully franked dividend and use even more of the franking credits. At the moment Alesco and Dulux have been unable to agree to that, and there is some issue as to whether ASIC will allow it. However the Takeovers Panel has decided at the moment it doesn’t have a problem with it. Alesco’s board has indicated it does support the idea in principal though.

This is a difficult situation now. At the moment it’s trading above the value of the bid, and the cash bid cannot be increased, there’s no doubt about that. There is still a real risk that the deal falls apart.  However, the fact that they’re still talking makes me think they’ll probably get it up and I think there’ll be some more franking credits put on the table.

This bid is really in no-man’s land at the moment, it depends on ASIC’s opinion, so any investment depends on your appetite for risk.

Sundance (SDL).

It’s all still rumour with Sundance. Hanlong is believed to have come back with 45c, higher than the previously-suggested 40c but still well below the 57c bid price. Either way it doesn’t matter.

The stock is still suspended so there’s nothing anybody can do. I did note that Fortitude Capital, a hedge fund, has bought a big position in Sundance, and it was confident the deal would go ahead. So, either the deal will go ahead and the stock will re-list, or it won’t go ahead and it will re-list, but there’s nothing anybody can do.

Billabong (BBG).

I’m getting a bit concerned about the bid for Billabong, and I’ll reiterate that I don’t think this is a good deal to buy into. The due diligence hasn’t even started yet, and either that means that Billabong is going slow or possibly the bidder is perhaps less keen.

It’s hard to say which it is – I think Billabong might be giving the new CEO Launa Inman a chance to prove her worth – but it’s very odd. I’m not sure you can trust the Billabong board, it’s just strange having rejected the bid, then saying they’d be open to a bid, to now be back-pedalling again.

The fact that due diligence hasn’t even started makes me think there’s a real risk here that no deal is done. Given that the deal we talked about is $1.45, and the stock closed today at $1.375, there’s plenty of downside if the deal doesn’t get up, and not much upside if it does.

Here’s what I think is going to happen: Billabong will wait for its results this Friday, particularly the outlook for the coming year, and see what the market reaction is to just keep the bidder engaged, but not completely there, a little longer until that announcement is made.

Goodman Fielder (GFF).

Goodman’s in a nasty situation at the moment, caught in between a tough retail environment and rising commodity prices – and into this comes Wilmar International.

Wilmar is saying that it made a proposal to the Goodman Fielder board and Goodman is saying, ‘No, it didn’t’. I don’t think a formal proposal was made, because if there was, it would have had to have been announced to the market. However, I think Wilmar has spoken to the board about the fact that it would like to make a takeover, and named a price, and the board has said the price is insufficient, we can’t talk to you.

Goodman Fielder’s share price has been so weak that it’s very embarrassing for the board to possibly accept a takeover massively below almost wherever the stock has traded. I think the board is hoping that if they just say ‘No, no, no’ that eventually the share price will pick up and that things will gradually work themselves out. But I have no doubt that Wilmar did make an offer to Goodman Fielder and it was probably only around about the current price, say 55-60 cents.

It’s not only Wilmar that might be interested either – Bright Foods, or any number of other Chinese companies could go for Goodman too, but Wilmar has already bought a stake in it so it’s the most interested at the moment.

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