Is this the end of the Sundance saga?

Sundance Resources (SDL)

The deal between Sundance Resources and China’s Sichuan Hanlong Group is in even more doubt since Hanlong missed a key deadline yesterday. Sundance shares last traded at 21 cents and are now in a halt. This is definitely one to stay away from, and for those who bought in, I would say consider getting out.

Adding to the controversy is the fact that Hanlong chairman Liu Han is being held by police, apparently on suspicion of harbouring his brother, who is a murder suspect. Hanlong’s ability to finance this deal is in serious doubt, but Sundance looks to still be holding on to the very, very dim hope that something might happen. 

Hanlong was due to provide details on how it intends to finance the $1.4 billion takeover this week, but instead issued Sundance with a formal notice confirming it would not be able to provide the crucial documents before the deadline. The companies will now hold talks for five days to try and rescue the deal.

If Sundance confirms the deal is off in the coming days, I think there could be a real rush to offload the shares, although the hedge funds and other big shareholders may not want to sell at current prices. But in the absence of a partner, I personally would be getting out as soon as I could. It will be difficult to sell these shares, as I can’t see there being many buyers.

Billabong (BBG)

Billabong’s share price has staged a partial recovery after dropping 20% in one session last week, but at the current price of 75 cents a share, it seems to me that the market has completely discounted the possibility of Billabong receiving a takeover offer from either of its two suitors.

The two private equity consortiums, Sycamore Partners Management, which is being led by Paul Naude, and Altamont/VF Corp are due to make a decision by tomorrow, April 28, and even though the market is leaning toward no offer being tabled, I still think there’s a reasonable chance of some kind of a deal. For me, the question is whether it will come in at $1.10 or lower.  I think we could see an offer of around 90 cents a share, although even if that happens, there’s still the possibility that the board could reject it for being too low. This is really just a waiting game at this stage.

Australian Infrastructure Fund (AIX)

AustralianSuper has yet to launch any legal action against the Future Fund or Australian Infrastructure Fund, so for now this deal still looks solid. It’s hard to know what exactly is going on behind the scenes, but I think if AustralianSuper was serious, it would have taken further action by now.

So essentially, the Future Fund and AIF are pushing ahead with their plans. As I’ve said previously, the vast majority of the payout to shareholders is due in April, just a few weeks away. See my recent article, A fund deal that stacks up any way.

I still think it is a good buy, but again, there is a risk here, given the threat of legal action. There is a good internal rate of return for those who buy in now, at the current share price of about $3.04. Shareholders should get between $3.22 and $3.25 over the next six to nine months, so the maximum that can be made on this trade at the moment is 20 cents, or around 6.5%.  But those contemplating buying in now need to weigh up the benefit of a 6.5% yield against the risk of a potential lawsuit. I still think the deal is pretty watertight, but there is an element of risk.

Perpetual (PPT)                  

I just wanted to briefly mention Perpetual and IOOF, because Perpetual’s share price is now trading above what US-based private equity firm Kohlberg Kravis Roberts was offering to pay when it launched a failed takeover back in 2010. A year after becoming chief executive, Geoff Lloyd has turned the company around with an aggressive cost-cutting strategy. It’s now a leaner, meaner organisation, which could make it a potential takeover target again.

IOOF’s share price is also higher, although it hasn’t run as hard as Perpetual yet. Of the two, I think IOOF is a better target. It’s also in the wealth management space, and while its share price has risen, it hasn’t increased as much as Perpetual over the same period. In my view, the big banks will be making a move into the wealth management space in the near term. They’re looking for more growth options, and even though they’re making good margins on loans at the moment, credit is not growing very strongly and the cost of money is unlikely to keep coming down. To grow their profits, the banks will need to look elsewhere, and moving into the wealth management space would seem like a natural step. To me, IOOF looks pretty attractive.

Envestra (ENV)

Finally, and very briefly, Envestra’s share price is still rising, partly because it is attractive for providing a safe yield – around 6%, but it’s also a potential takeover target. Australian Pipeline Trust owns about 30% of the company, and I would think that at some stage APT might look to launch a takeover. This is one that I think is a good buy right now.

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

Source: NewsBites