Kirin may swallow Lion instead

PORTFOLIO POINT: Now the proposed takeover of Coca-Cola Amatil has failed, Lion Nathan may be privatised by its parent Kirin.
Lion Nathan/Kirin/Coca-Cola Amatil. Lion Nathan's attempt to take over Coca-Cola Amatil has failed. The Lion Nathan bid was backed by Kirin, the Japanese brewer that is a controlling shareholder.

The termination of the deal prompts the question what happens now for Lion Nathan and you have to be ready to expect a privatisation plan from the Japanese brewer, which has now spent so much time and money on its trans-Tasman subsidiary.

I’ve been very sceptical about this bid from the beginning, mainly because it was never very clear how it would work for Coca-Cola Amatil’s US parent, The Coca Cola Company, given that its main interest is having a reliable buyer of the concentrates for their softdrinks and distributing it in this market.

Essentially, The Coca Cola Company wanted too many conditions for the deal to go ahead; it would only agree to the bid if Kirin agreed to sell a whole lot of assets to it, some Coca-Cola Amatil assets and some Kirin assets.

It also wanted Kirin to stop competing in terms of other softdrink brands, so there were just a whole lot of things they wanted and it was really unacceptable for Kirin.

So what we’ve seen in early trade on Monday, is that the spread between Lion and Coke, which on the cash and scrip deal, or consideration, had been trading as low as 4% and as high as 10%, has blown out to 18%. *

That is, Lion shares have gone up, Coke shares have gone down. Interestingly, 18% is the level that the shares were relative to each other prior to the bid being announced.

In fact, I think Kirin felt that the asset sales would damage or devalue Lion Nathan so much that the brewer’s scrip wouldn’t hold up. Kirin, as part of the CCA deal, was going to have to put money into Lion Nathan at a higher price.

It might make sense now for Kirin just to buy the whole thing.

The bid is certainly possible. It would be subject to Foreign Investment Review Board approval, but I don’t think FIRB approval would be an issue.

Any company, where you’ve got a large shareholder like that, is always ripe for a takeover and I think Kirin, having sort of exposed itself a bit here, might just decide to make a move.

* An earlier version of this story suggested the spread between Lion and Coke in dollar terms, it should have been percentages.

BHP Billiton / Rio Tinto. BHP Billiton Ltd has confirmed, on Alan Kohler's Inside Business show on ABC TV, that it won’t make a second bid for Rio Tinto, but there is talk that Rio may be preparing to sell its Coal & Allied stake to Japanese firm Mitsui. The only thing about this speculation is that Rio will be talking to everyone when it comes to asset sales. The fact that Mitsui is named is not surprising; you’d be surprised if a company like Mitsui wasn’t named because it is a major commodities owner.

Another big piece of news is the decision by Rio Tinto chairman-elect Jim Leng not to take up the position. So Paul Skinner, who led the “successful” defence against BHP, has to stay with the company until his replacement can be found.

The fact is that when new directors don’t want to take up their post – and remember this happened with ABC Learning Centres – it usually means something is not right.

I reckon there’s a prospect of law suits against the Rio board for having fought against the BHP bid. The other thing to consider would be, if they sell assets, people are going to say, “Wait a minute, you were prepared to sell these assets at this price, why weren’t you prepared to sell the whole company to BHP at a much, much higher price?”

Who knows? Maybe the new director’s just finding that it could all be too hard. But look, Rio will sell assets; it probably won’t get the prices it wants, and Skinner, if he’s now going to stay on the board, will attract a lot of criticism for his handling of the whole process.

Arrow/Pure Energy/BG Group. Arrow's bid for Pure Energy has been one of those deals that I have been advocating people put on. With UK energy giant BG group launching a $796 million ($US537.8 million) bid this morning, it looks like there is a new player in the field. BG, you might remember, triggered great excitement in the coal seam gas sector when it made an ultimately failed offer for Origin Energy.

BG is offering $6.40 a share, a 19% premium to the implied value of Arrow's $5.39-a-share offer.

Now, Arrow’s bid for Pure Energy is pretty generous and shows it was always worried about someone else grabbing it. With BG in the mix there’s a 50:50 chance Arrow will make another bid.

Arrow chief executive Nick Davies has publicly noted how important the Pure deal was to the company, so it’s unlikely it is going to back down just yet.

The coal seam gas sector has proved the hottest sector over the past three to six months, so the arrival of a new bidder is very interesting; we’ll see how that goes. Typically, the way the stocks trade, if there’s a rival bid it just depends whether people think Arrow will bid again.

Arrow shares could fall, but they rose a bit in early trade and have maintained their positive momentum after BG’s announcement.

Incremental/ Transatlantic. Still in the energy sector, there is an increased bid on the table for WA oil explorer Incremental Petroleum. The offer comes from Transatlantic Petroleum, which launched its initial bid in October last year, a bid I had initially criticised. I really did not think Transatlantic had the cash. It’s gone and got the cash. The bid was $1.05 and that bid is still alive.

Transatlantic has lifted it to $1.07; it’s only a small lift, but because the market wasn’t expecting this, the stock went from 80¢-odd, right up to now $1.06. The bid is also unconditional; you get paid in 10 days. So, it’s an amazing outcome, really.

Cooper Energy, which had made a scrip bid for Incremental in September last year, has accepted Transatlantic’s bid. Cooper’s bid closed in November and it was able to pick up acceptances for 27% of Incremental.

So, Cooper will be happy take some cash and the bid which, as I said was unconditional, irrespective of what Cooper did; all in all, a good outcome for Incremental shareholders. There won’t be another bid now.

Linc Energy. Queensland-based Linc Energy has confirmed it’s still in discussions with several parties, not just China-based Xinwen Mining, for the sale of its Emerald Coal tenements in Queensland.

But, you’d have to say, Xinwen agreed in September to pay $1.5 billion for these, even if they come back with an offer, and I would be surprised if they would, given what’s happen to both thermal and coking coal prices in the last five months, it will not be $1.5 billion; it will be lucky to be half that level.

So they’re in talks, but you’d have to say it’s probably a broken bid.

Centrebet/IAS. In gaming, the Centrebet International Ltd/International All Sports tussle is heating up. Centrebet’s two-part bid for International All Sports was 28¢, or 33¢ if they got to 90%. The 27% shareholder, the well known bookmaker Mark Read, has said he will not accept the bid at this level. Now it remains to be seen whether Centrebet proceeds and gets as many shares as it can at the 28¢ cent level, but clearly it’s not going to go higher.

Will there be negotiations between the two? The answer is “probably”, but because of the existing takeover laws, once Mark Read had said he won’t accept the bid at this level, he can’t just turn around and accept it now.

So, either you just get 28¢ or there’s a big increase in the bid. Therefore, if you can buy shares up to 28¢, it’s probably not a bad deal. However, the bid does still have some other conditions on it.

RedFlex. Red light camera maker RedFlex Holdings Ltd has come out and said it has had indicative proposals in the $3.50 a share-plus range, but none of them are in a condition to be put to shareholders.

Usually what this means is they’re either conditional upon financing, or they are only indicative and not firm, or something like that.

So it hasn’t really moved the RedFlex share price very much, as I’ve said before, pricing the shares on the idea that a bid will definitely happen, and again the company appears to be doing very well in the United States, in terms of winning traffic light contracts. (Click here to read more in last week's column).

So, not a dead deal, but one that is not a proper bid at this stage

Vodafone/Hutchison. Some action in the telecom sector, with international mobile phone companies Vodafone and Hutchison Whampoa deciding to merge their Australian businesses in a 50:50 joint venture.

As part of the deal, the telcos will merge Vodafone Australia Ltd and Hutchison 3G Australia Pty Ltd, a unit of Hutchison Telecommunications Australia. Hutchison's local listing was almost 9% higher at 12.5¢ after the deal was announced.

The new joint venture, VHA Pty Ltd, would result in a deferred payment to Vodafone of $500 million and is expected to have about 27% of the market.

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

nTakeover Action February 2-6, 2009
Date	Target	ASX	Bidder	(%)		Notes
16/01/09	3D Oil	TDO	Drillsearch Energy	19.90
05/02/09	Amazing Loans	AZD	IEG Holdings	59.90
05/01/09	Broadcast Production Services	BKR	Prime Media Group	77.11		Offer for the balance. Ext to Feb 20.
03/02/09	Espreon	EON	Vectis	19.73		Closing Mar 6.
05/02/09	Espreon	EON	SAI Global	32.74
05/02/09	Fusion Resources	FSN	Paladin Energy	94.22		Compulsory acquisition.
20/01/09	GoldLink IncomePlus	GLI	Emerald Capital	52.71		Closed. Holding depends on Panel finding.
27/01/09	Incremental Petroleum	IPM	TransAtlantic Petroleum	20.19		Ext to Feb 27.
02/02/09	International Allsports	IAS	Centrebet International	0.00
22/09/08	Murchison Metals	MMX	Sinosteel	0.00		Cleared by FIRB to move to 49.9%
05/02/09	Perilya	PEM	Zhongjin Lingnan	0.00		Proposed placement for 50.1%. FIRB clearance.
22/12/08	Pure Energy	PES	Arrow Energy	19.90
02/02/09	Strathfield Group	SRA	Clear Communications	58.17		Follows acquisition of 1.5m shares.
05/02/09	Sydney Gas	SGL	AGL Energy	89.42		Unconditional.
nScheme of Arrangement
05/02/09	Australasian Resources	ARH	Resource Development International	66.37		Resource Devel associated with Clive Palmer who holds 66.37%. To extend beyond Mar 31.
24/11/08	Australian Wealth Management	AUW	IOOF Holdings	0.00		Vote March.
05/02/09	Avexa Pharmaceuticals	AVX	Progen Pharmaceuticals	0.00		Vote Mar 11. See Foreshadowed Offers.
12/01/09	International Goldfields	IGC	NKWE Platinum	0.00		To complete March 31.
04/11/08	Island Sky Australia	ISK	Salton Inc	0.00		No vote date set.
19/12/08	Jackson Minerals	JAK	Scimitar Resources	0.00		No vote date set.
05/12/08	People Telecom	PEO	M2 Telecommunications Group	0.00		No vote date set.
21/01/09	Scarborough Equities	SCB	Bentley International	0.00		Vote Feb 20.
nBackdoor Listing
02/02/09	Jupiter Mines	JMS	Pallinghurst Res & Red Rock Res	0.00		Agreement signed, subject to EGM Mar 9.
06/02/09	Metminco	MNC	Hampton Mining	0.00		To acquire 51% of unlisted Hampton. Change of control. Vote Mar 16.
nForeshadowed Offers
23/10/08	Babcock & Brown	BNB	Unnamed parties	0.00		Expressions of interest.
22/12/09	Babcock & Brown Power	BBP	Several unnamed parties	0.00		Non-binding indicative submissions.
28/10/08	Becton Property	BEC	Several unnamed parties	0.00		Due diligence starts.
04/02/09	Coca-Cola Amatil	CCL	Lion Nathan	0.00		CCL not 'actively considering' proposal. Media reports proposal dropped.
03/02/09	Felix Resources	FLX	Several expressions of interest	0.00		Discussions continue.
16/10/08	Jackgreen	JGL	Unnamed parties	0.00		Received approaches.
07/11/08	MDS Financial	MWS	Unnamed parties	0.00		Rejects offer for Market Data. Other discussions continue.
28/11/08	OM Holdings	OMH	Consolidated Minerals	11.00		Seeks ConsMin intentions.
28/01/09	Progen Pharmaceuticals	PGL	Cytopia	5.00		Cytopia associates seek merger meeting. See Scheme above.
04/02/09	Redflex Holdings	RDF	Unnamed parties	0.00		Unsolicited indicative proposals - still inadequate
27/01/09	Tolhurst	TNL	Patersons	0.00		In-principle agreement.
06/02/09	Ventracor	VCR	No party as yet	0.00		Seeking expressions of interest. No Abiomed offer expected. Trading halt.
30/12/09	Vision Group	VGH	Several unnamed parties	0.00		Non-binding conditional offers.

Source: NewsBites