Ludowici eyes the finish line

PORTFOLIO POINT: With the Takeovers Panel no longer a concern, Ludowici shareholders need only worry about whether Weir will come back with a higher bid.

Ludowici (LDW). Forget the Takeovers Panel now, because although they can’t seem to get their hands out of this deal, it’s not beyond the realms of possibility that we see another one or two bids for Ludowici.

To recap, Danish group FLSmidth lobbed a $7.20 bid at a very surprised and very happy Ludowici board (it was trading at the time around $3.50). The foreign company’s CEO then made some off-the-cuff comments about not lifting the bid just to entice shareholders into the deal and Scottish group Weir followed those quotes with a $7.92 counter offer. Then the Takeovers Panel got involved over the comments, yet the bidding war continued. Today, Weir Group is standing on $10 and FLSmidth on $11.

The Takeovers Panel has now said all bidding activity must stop until it approves all the offers that have already gone ahead (something Ludowici described in the press today as “bureaucracy gone mad”). I don’t understand what the Panel is doing here, because it’s already effectively approved all the bids to date.

So forget the Panel now; the only thing you need to worry about is whether Weir comes back with a higher bid. I think it is entirely possible that it does, even though on a valuation basis Ludowici is looking very expensive, and you should find out whether it will make another move within a week at most. This is because, unlike the ACCC, the Takeovers Panel is often filled with lawyers and merchant bankers who understand the urgency under which these decisions must be made.

So would I buy in at $11.06? Probably not, but Weir has already bid twice and FLSmidth three times, so there might be a couple more in this one.

Echo Entertainment Group (EGP). Much has been said about the share raid by Crown (see: James Packer) on rival casino operator Echo, but what they’ve done instead is essentially buy a very large contract for difference (CFD).

They entered into a swap deal where Deutsche Bank bought shares in Echo, but it’s Crown that bears any benefit or the loss if the stock moves above or below the strike price of $3.73. So Packer doesn’t own 10% of Echo yet, just the 4.9% the company bought last year.

This isn’t an unusual structure, but people are asking questions over whether an economic interest (where Crown makes a profit or loss on the stock even though they don’t actually own them) is the same as effective control, where they could direct the voting rights attached to the stock. It’s up to the regulators to decide whether an economic interest should count for the purposes of a substantial shareholding – which could get complicated.

Does it really matter? No. We know Packer wants Echo.

The nuances of exactly why are also starting to come out. Last week, I said there will only ever be one casino in each Australian city, and now we know that Packer would like to split Star City Casino in Sydney into two: one for everyone else and one in a separate building for the high rollers on the Barangaroo development, preferably with Echo paying for the lot.

It’s technically just extending the one licence over two locations, and for this reason Packer can’t do it without owning or controlling existing licence-holder Echo.

What’s also up for debate is whether Crown lifts its stake to 20% and then lobs a full takeover bid, or Packer tries to influence Echo as a board member.

The important thing is to remember that you can never trust what people say in these contexts. Packer won’t come out and say there’s a bid in the offing (because then Crown will have to make one and he will have showed his hand), and allegations that he may just creep up the register a la Kerry Stokes could be a foil to bring down the share price before making an offer.

All we know is that he’s seriously interested.

Goodman Fielder (GFF). Like Billabong and Pacific Brands, this is a beaten-up stock. Goodman Fielder has taken punches not just from the supermarket price wars but from rising raw materials prices as well, but within the company is a kernel of value that is obviously appealing to Wilmar International.

The successful buyer of CSR’s Sucrogen business, Wilmar last week built a 10.1% stake in Goodman but was aiming for 15%. As it’s clearly trying to consolidate food assets in this part of the world, this is a good sign for shareholders in the Australian company and Wilmar has been smart by getting set before any bidding has started – much like James Packer with Echo.

Wilmar says it hasn’t decided whether it will make a bid yet, but my guess is it will. The question is: at what price? Goodman is trading at half its 12-month high, and that’s with a takeover premium baked in. I think 80-85c a share is probably what you’ll get on this one.

Furthermore, while Chinese firm Bright Foods could be a contender for Goodman, Wilmar has built a bocking stake with that 10.1%. It is sizable enough to deter uncommitted bidders but also says the company is in play, and they’d best move fast if they want in.

Billabong International (BBG). In contrast to Goodman Fielder, the strategic stake in Billabong is categorically not going to lead to a takeover anytime soon.

Founder and board member Gordon Merchant has lifted his stake to 15.8% of the company and says even at $4 a share, he’s not selling. As TPG’s increased offer was $3.30, from $3, it’s unlikely shareholders would even see $4 anyway.

If you’re buying it now you’re putting your faith in Merchant to be able to turn the company around. He’s done it once before, but the world has changed since then: the dynamics of retail are different and the competition is fiercer.

Billabong could conceivably remain on private equity’s radar if the board starts doing some of the things that need to be done, such as shutting down the store chain and reverting to being a strict wholesaler again, but for the time being Billabong is not a takeover target.

New Hope Corporation (NHC).Thermal coal producer New Hope has failed to get a bid away for itself, probably because the board was asking for too much money.

New Hope put itself up for sale in October, saying that it had received a number of indicative approaches and the right thing to do was to start an auction process. Last week they ended that process, and it makes me wonder whether we’ve seen the golden days of coal.

It’s very odd for a company to just put itself up for sale. We’ve seen about $30 billion of deals in the sector over the past 12 months and if New Hope couldn’t get a nibble, I have to wonder. It also smacks of raising the white flag and admitting to some kind of internal weakness, which doesn’t instil confidence in the company or the stock.

Gloucester Coal (GCL). Gloucester is working through a merger deal with Yanzhou Coal, but although the media has taken news of an “update” to be released this week as a cue that a higher offer is forthcoming, I am sceptical.

We still don’t know how this deal will work as it involves $3.20 cash and the rest in value-guaranteed scrip in a yet-to-be-listed Australian company; it’s taken a long time and the end result is complicated.

So the fact that Gloucester told the market that an update would come this week – rather than “important news” or an “exciting announcement” – suggests that the news is not good.

The stock has fallen to $8.46 after it jumped past $10 when the deal was announced, so it’s not bad buying if everything goes well. However, if the deal falls apart, the stock will be pummelled.

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

-Takeover Action February 27 - March 2, 2012
Date	Target	ASX	Bidder	(%)	Notes
1/03/2012	Accent Resources	ACS	Xingang Resources	60.65
28/02/2012	African Iron	AKI	Exxaro Australia	99.37	Pre-bid acceptance
15/02/2012	Brockman Resources	BRM	Wah Nam International	72.70
3/02/2012	Extract Resources	EXT	Taurus Minerals	42.74	Kalahari offer unconditional
16/12/2011	Gold One International	GDO	BCX Gold Investments	82.80	Unconditional
15/12/2011	Hastings Diversified	HDF	APA Group	20.71
29/02/2012	Living and Leisure	LLA	Merlin Entertainments	96.91
29/02/2012	Magma Metals	MMW	Panoramic Resources	12.02
24/02/2012	MSF Sugar	MSF	Mitr Phol Sugar	96.94	Unconditional
23/02/2012	Signature Metals	SBL	LionGold	32.16	Ext to Mar 16
22/02/2012	UCL Resources	UCL	Minemakers	13.10
Schemes of Arrangement
12/12/2011	Aston Resources	AZT	Whitehaven Coal	19.99	Vote late Mar
10/02/2012	Austar United Communications	AUN	Foxtel	0.00	Vote Mar 30
21/02/2012	Auzex Resources	AZZ	Bullabulling Gold	0.00	See GGG Resources - 50/50 merger. Vote Mar 22
13/02/2012	Charter Hall Office REIT	CQO	Macquarie Capital consortium	0.00	Vote Mar 15
15/02/2012	Flinders Mines	FMS	Magnitogorsk Iron and Steel Works	0.00	Vote Mar 30
21/02/2012	GGG Resources	GGB	Bullabulling Gold	0.00	See Auzex Resources - 50/50 merger. UK court hearing Mar 8
1/03/2012	oOh!media	OOH	Champ III Funds	19.60	Suspended on court approval
11/10/2011	Sundance Resources	SDL	Hanlong Mining Investment	17.99
Reverse Takeover
17/02/2012	Millepede International	MPD	Angline Pastoral Pty Ltd	0.00	Angline and shareholders to control 67.6%. Vote early May
Foreshadowed Offers
28/02/2012	Billabong International	BBG	TPG	0.00	Discussions cease
23/12/2011	Gloucester Coal	GCL	Yancoal (Yanzhou Coal)	64.50	64.5% holder Noble Group in favour
28/02/2012	Goodman Fielder	GFF	Wilmar International	5.00-	Press speculation
16/02/2012	Ludowici	LDW	FLSmidth	22.00	Indicative 22% support for proposed scheme
10/02/2012	Ludowici	LDW	Weir Group	0.00	Indicative proposal
1/03/2012	New Hope Corp	NHC	Unnamed parties	0.00	Discussions terminated
6/02/2012	Spotless Group	SPT	Pacific Equity Partners	19.64	Non-exclusive due diligence

Source: News Bites