LUNCH DEALS: Rio's clouds clear

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Rio Tinto is spinning out its US coal unit, Cloud Peak Energy. Is it an attempt to sell at the top of the market or are things just hotting up for the sector? Arrow Energy responds to takeover speculation, Mirvac confirms talks about the internalisation of its real estate trust and the strange world of biotechnology, bonds and Siberian military strategy keeps us amused.
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Rio Tinto

A new application for an initial public offering has been issued by Rio Tinto's US coal business, Cloud Peak Energy after the previous one expired and a trade sale failed to materialise. Rio has been trying to spin-off the coking coal supplier for some time and sought permission last year to raise up to $US1 billion from a listing. That listing plan was later reduced to $US250 million, but now permission is being sought for up to $US500 million, or just under $600 million. The valuation and timing could mean the end of coal's rally however if China's recent destocking comes to an end. A listing at this time could lock in gains and provide some extra cash to Rio's coffers. Then again, with Yanzhou Coal offering a possible $3.7 billion for Felix Resources in Australia, perhaps there's still plenty of life left in the old burner. That indeed seems to be the sentiment of other global players, including India's coal miners, which have been buying or bidding for assets around the world, including Australia. Cloud Peak, which owns surface mines in Wyoming and Montana, is America's third biggest coal producer, but supplies mainly to nearby power stations at fixed rates. The company had revenues of $US360.5 million in the three months to March 31, according to Reuters, a rise of 19.5 per cent on the corresponding period the year before. Credit Suisse, Morgan Stanley and RBC Capital Markets are leading the underwriting. CS and Morgan both led Rio's recent $US15 billion entitlement offer while RBC is a relative newbie on Rio's advisory panel. Interestingly they initiated coverage of Rio just last week with a 2700 pence price target. In London Rio closed last night higher at 2,312 pence.
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Arrow Energy

Coal seam gas company Arrow Energy has said it has not received any takeover offer and is not aware of being targeted by Chinese interests in a response to an ASX price query. Rumours were mentioned in this column earlier this week that any of Royal Dutch Shell, BP or a Chinese company could bid for Arrow. A rumour that PetroChina was teaming up with Shell to make a joint bid for Arrow was also mentioned in today's Financial Review. Another rumour that the ASX asked Arrow to respond to was that Arrow could sell another 10 to 20 per cent of its international business to raise $150 million over four years, as mentioned by newswire Dow Jones. Arrow said that it may consider future funding via the sale of shares to strategic investors and that it had been holding preliminary discussions with relevant parties, but would not elaborate. Arrow shares rose 6.7 per cent yesterday and were up another 5.5 per cent by mid-morning today.
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Mirvac Group

Property developer Mirvac Group has also responded to market speculation concerning a potential transaction with Mirvac Real Estate Investment Trust. Insiders are thought to have told the Financial Review that Mirvac would buy Mirvac REIT, of which it currently owns 24.6 per cent and is the responsible entity. Mirvac said it had held preliminary discussions with Mirvac REIT about a potential offer and would make a further announcement when appropriate. Mirvac REIT used to be the old "better than a bank" Estate Mortgage Trust, which collapsed in 1990 after interest rates spiked. It later became the James Fielding Meridian Investment Trust before James Fieldings' reverse takeover four years ago. A recent Citigroup report identified Mirvac REIT and Cromwell Corporation as the property sector's most likely targets for merger and acquisition activity. No news on Cromwell, but watch this space ahead of the group's 2009 results announcement on Thursday next week.
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Biota Holdings

While the life sciences and pharmaceuticals industry has seen some of the highest levels of M&A activity in the past year, Biota Holdings is returning cash to shareholders rather than using the funds to play the game. The anti-infective drug development company has announced a $20 million return with a record date of November 19, subject to shareholder approval at the company's annual general meeting the week before. Biota has had a good flu season with its Relenza drug and has a new product in the pipeline that it says is more powerful than both Relenza and Hoffmann–La Roche's Tamiflu. Nutraceuticals group Phosphagenics has meanwhile signed a deal with Metabolic Pharmaceuticals to work together on the development of human growth hormones for the treatment of obesity. Hopefully they have more success than another company hoping to treat the global obesity epidemic – Dia-B Tech, a diabetes treatment company chaired by former health minister Michael Wooldridge. The company hoped to raise $12.5 million but the market was a little less than enthusiastic amid reports that the company it intended to fund a takeover for was linked to convicted fraudster Phillipe Barros. And in a further stroke of bad luck, the issue's underwriter, Winteray Capital, has also failed to come up with the goods. Strangely, Winteray has also been linked to the same Phillipe Barros. Or is that Phillippe De Barros or Felipe Barros?
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Wrapping up

Some activity in the bond market today with Citigroup launching a $1.25 billion Australian government guaranteed bond at 43 basis points over swap. The issue, comprising a fixed rate tranche of $450 million and an $800 million floating rate tranche, is being run by Citi with ANZ acting as senior co-manager and the Commonwealth Bank, NAB, Westpac and Macquarie as junior co-managers. Debt market news service Insto has also reported a rumour that Members Equity could launch a $250 million government guaranteed bond. Elsewhere in the world, Santos has found gas in the Browse Basin in Western Australia, sending the company's shares three per cent higher by mid morning. Also in gas, some interesting geopolitical developments we haven't mentioned in the last day or so: Italy's Eni is the latest company to sign a big investment deal in the Republic of Congo as energy companies move their interests out of strife-prone Nigeria and in Siberia, the Russian army is conducting manoeuvres against possible terrorist attacks on its pipelines to Asia. Analysts see Eastern Russia as a key focus for China in the coming decades. The last year or so has seen Chinese and Indian energy firms scramble for exploration and development projects across the world, drawing new lines with their western competitors and bringing new sources of supply, like Queensland coal seam gas, into the spotlight.