LUNCH DEALS: Pipe dreams

Skipped BREAKFAST DEALS this morning? Catch up on the most important deal of the day.

There could be some major energy infrastructure happenings in the pipeline following a deal overnight in the US and KKR's presence in a bid for Epic Energy. Also, what's going on at Beach Petroleum and what's with all the South African deals going on?

Hastings Diversified Utilities Fund
Pipeline owner Hastings Diversified Utilities Fund (HDF) will be closely looking at the valuations implied by the accepted $US3.3 billion takeover bid for Enterprise Products Partners from Teppco Partners to create America's biggest pipeline network. HDF is presently considering a re-jigged offer for its subsidiary Epic Energy from Trust Company of the West (TCW), a US fund manager. TCW, with the backing of private equity giant Kohlberg Kravis Roberts (KKR), has demonstrated it has deep pockets and a desire for the assets, but perhaps something is at play beyond valuations. One Wheels & Deals reader who has done a lot of research on the offer suggests that there may be a strategic intention for TCW and KKR, especially if Epic's suite of pipelines in Queensland and South Australia can be linked to the Darwin pipeline and onwards to that city's LNG plant, which has approval to process up to 10 million tonnes per annum. Such a scenario could have big implications for Beach Petroleum and Santos, among others. TCW and KKR would have the wherewithal for such a project, but we'll have to wait to see if they have the motivation.

Drillsearch Energy
Oil exploration company Drillsearch Energy has rejected Beach Petroleum's one-for-27 scrip offer, which effectively values the target at around 3 cents per share. Drillsearch says the offer significantly undervalues the company and its future potential, based on reserves plus contingent and prospective resource estimates endorsed by an independent report by Gaffney, Cline & Associates. Drillsearch's share price, although down from levels last week, also seems to reject the offer, or at least suggest a revised one is in the works. But this being a scrip deal, there is every chance that the offer could rise in line with Beach returning to trading levels seen earlier in the year. News last week that well-regarded chief executive Reg Nelson would be handing over the reins to COO Hector Gordon in order to focus on "strategic growth opportunities" could be a sign of interesting developments to come (see story above), then again, hedge fund Mathews Capital Partners did mysteriously announce a reduction in its investment in Beach from 107.7 million shares to 70.8 million, or 6.44 per cent. What Mathews, which last year was heralded as the best performing fund on earth, didn't explain was when and at what levels it sold its holdings. Beach currently has a 14.53 per cent interest in Drillsearch.

Sylvania Resources
Finland's Ruukki Group has announced a friendly merger with Sylvania Resources to create an integrated platinum group metals and ferrochrome company. The merger, which is proposed to take place via an Australian-governed scheme of arrangement, will be put to shareholders after the close of Syvania's current offers for SA Metals and Great Australian Resources. The Ruukki proposal is not contingent however on these takeovers coming to fruition. The scheme, unanimously recommended by both boards in the absence of a superior proposal, is for one Ruukki share for every 1.81 Sylvania shares, implying a value of £1.05 per Sylvania share, a 28 per cent premium to the company's close on June 29. The proposal hasn't impressed Australian shareholders however, with Sylvania shares down on the news. If approved, a merger with Perth-based Sylvania will represent the culmination of Ruukki's journey from a Lapland wood processing business to integrated miner. On May 7, Ruukki's board resolved to split its things of stone and wood into two separately-listed companies. The demerger will take place next year after completion of the Sylvania scheme of arrangement. Also last month, Ruukki acquired 84.9 per cent of South Africa's Mogale Alloys for 2 billion rand ($315.7 million) The London office of South Africa's Standard Bank is advising Ruukki on the transaction, while Sylvania has engaged its AIM-board nomad advisor Ambrian Partners to advise.

MinTails
Gold tailings miner MinTails has revealed the name of the company sniffing around its South African assets. Johannesburg-listed DRDGold has made an offer for all of Mintails assets in the country, with the exception of its stake in West Wits Mining, for scrip. It is uncertain whether MinTails, which doesn't have any other investments, will retain a listing on the ASX. The purchase price, around 5.5 cents per share, is subject to shareholder approval. MinTails climbed sharply out of suspension on the announcement.

More South Africans
Outside of mining, wine, cricket and rugby, South Africa likes to play hard with Australia's property trust sector, and Investec is no exception, planning a second property fund for later this year, according to the Financial Review. South African businessman Nathan Kirsh's support of Abacus Property Group has meanwhile turned that fund into a property predator as well, with the group looking at a number of sites in Sydney and Melbourne. Orchard Funds Management, which recently saw its Orchard Industrial Property Fund rescued by South Africa's Growthpoint, is meanwhile putting other assets on the block and Dexus Property Group is tipped to be selling commercial real estate too, perhaps giving even more opportunities for other acquisitive South Africans.

Funtastic
Toy wholesaler Funtastic has released the offer documents for its controversial rights issue, which will see it raise $22 million via a one-for-one non-renounceable entitlement offer at 13.5 cents per share. Shareholders yesterday approved the raising and the purchase of Hong Kong toy maker NSR, run by former Funtastic director Nir Pizmony. The raising is fully underwritten by Craig Mathieson, son of pub baron Bruce, and brother-in-law of Funtastic boss Stewart Downs. The restructuring comes after National Australia Bank extended its loans until June 2011. Funtastic looked into the abyss last year, following the collapse of ABC Learning to which it had a $65 million exposure. Since then, it has seen Lachlan Murdoch become a major shareholder and the resignation of former chief executive Tony Oates.

Credit union mergers
Listed Woollongong-based credit union IMB has announced a merger with Community Alliance Credit Union (CACU), which has its base further to the south in Illawarra. The merged entity will have 52 branches, 215,000 members, 612 employees and $5 billion in assets, the companies said, and would be effected by way of a voluntary transfer of CACU's business to IMB, subject to approval to CACU's members and APRA. If approved, it is anticipated that the transfer will take place on October 1. CACU, which comprises four credit unions, is the smaller of the two entities with $490 million under management, versus $4.5 billion. Nevertheless, as groups like Victoria's Mecu take over smaller rivals like RegionalOne, staying independent and local is not always easy.

Wrapping up
Advanced Magnesium has launched a one-for-one non-renounceable rights issue to raise $4.2 million, while Western Plains Resources has announced a 1-for-12 non-renounceable issue to raise $1.95 million. Alliance Resources has meanwhile put its shares in a trading halt pending the announcement of its recent rights issue shortfall. Elsewhere in the sector, Auzex Resources has said it is still in discussions with potential investors sourced through advisory firms SLM and Heuris Partners. The company says that a number of parties are assessing both its Kingsgate and Khartoum projects. That's Khartoum, North Queensland, not Sudan, by the way. Kentor Gold has also secured a 80 per cent purchase option over the Andash copper-gold project in Kyrgyzstan, while PanAust has received FIRB approval for a $216 million 19.9 per cent investment by Guangdong Rising Assets Management Company. Outside of resources, Genesis Research & Development Corporation is in a halt on both the ASX and NZX pending an "open discussion of the company's future" at its AGM this afternoon, and property company MacarthurCook has rejected the revised offer by a subsidiary of AIMS Financial Group in Sydney. Finally, Macquarie Communications Infrastructure Group shareholders are set to vote today on Canada Pension Plan Investment Board's offer for the fund and there are rumours that Macquarie Office Fund may be close to selling its 80 per cent interest in two US office towers for $US545 million. An unlisted Macquarie fund last week sold an office tower in Singapore for $72 million.

Correction
In yesterday's Lunch Deals we wrote that Haoma Mining's refined elazac assay method may be able to extract more nickel from lateritic ore based on the method's success in extracting and assaying more gold than traditional methods. The elazac process has not been tested in laterite, but other tests have shown that the method was able to extract between 20 and 50 per cent of arsenic measured on nickel sulphide ore samples.