Market tremors

PORTFOLIO POINT: A string of minor takeovers are rattled by global events, but the “big one” gets closer.

BC Iron (BCI): The situation in Japan sent shudders through the market last week as two deals collapsed, with the growing possibility of a third going under. I’ll start with BC Iron, which, although isn’t directly related to Japan’s travails, appears to be a victim of the general malaise.

The $345 million offer from Hong Kong-based Regent Pacific came as a surprise in January – considering everyone was expecting Fortescue Metals Group to be the one to swoop, but just as suddenly the company announced that the bid was off.

Regent Pacific’s excuse was that 21% majority shareholder, Consolidated Minerals, was not in favour of the deal. They seem to have based this opinion on speculative reports out of the US, but Consolidated Minerals came out straight away and said – then as now – that it’s still waiting on a scheme booklet and an independent expert’s report in order to make any decisions.

I don’t know why the suitor got cold feet, but legally Regent may have a bit of trouble pulling out of the deal at this stage. BC Iron is so irate it’s taking them to the Takeovers Panel and seeking a Declaration of Unacceptable Circumstances. The Takeovers Panel is powerful and can force suitors to reopen bids; but whether it can force a foreign company to do any more than pay a break fee is debatable.

BC Iron stock fell 26% after Regent said it was pulling out, but it’s now back up to $2.50, indicating that some people at least think the bid, worth $3.30 a share, will come back.

Mantra Resources (MRU): Two days later another bid collapsed and this one was very, very odd and there may be a lesson in this for all investors.

Russian state-owned atomic energy company ARMZ had a low-condition $8 a share bid in front of the dual listed uranium miner Mantra, then called it off with the intimation that they might look at an “alternative transaction”; in other words, a lower bid. Mantra closed on Wednesday at $6.69 and was then smashed the following day when it opened 32% lower.

Mantra may also take ARMZ to the Takeovers Panel but again, there may be little that can be done if the company decides to head home to Russia and ignore the Australian ruling.

The break fee was $11.6 million, or 1% of the $1.6 billion deal, so what I think happened was ARMZ decided that it would be worth it to pay the fee and (now that the market is ascribing a 20–40% discount to most uranium stocks) come back with a lower bid later. The Chinese company CGNPC’s bid for Namibian-focused Kalahari (which owns a stake in Extract Resources) is even more likely to go the same way because in this situation you have only the intention to make a bid and no money down.

Tower Australia (TAL): The third bid that’s hit the rocks is Japanese insurer Dai-ichi Life’s $1.2 billion takeover of Tower Australia. I’ve been through this offer with a fine-toothed comb: it has very few conditions and if you’d said 10 days ago this bid may not make it past the Japanese regulator I would have strongly disagreed, but the world has changed a lot since then.

The bulk of Dai-ichi’s claimants are Japanese, and it’s now facing higher than usual claims. It’s possible that the Japanese regulator could block the deal on the ground that it doesn’t want Dai-ichi to be spending money outside the country, because the government will borrow from taxpayers and companies to finance the rebuild. The government could put its needs ahead of Dai-ichi in this instance.

The bid is at $4 a share, and today Tower closed at $3.88. If the bid is rejected you’ll lose about $1, and a 35% downside versus a 3% upside is just not a good enough risk-return trade-off for me; anyone wanting to get into it will need to look at the whole offer very carefully.

ASX (ASX): Politics is what is going to save or sink Singapore Exchange’s (SGX) bid for ASX, as I’ve said before, and two things happened last week to make it even less likely.

The first was that the sell-down following the Japanese earthquake hit the Singapore Stock Exchange hard, bringing its capitalisation down to just $100 million more that the ASX, which means the argument for a takeover versus a merger is considerably weaker.

The second thing was that three Liberal politicians joined the Nationals and the Greens in opposing the takeover, and I don’t think there are many Labor MPs who care whether it goes through or not so the political support, while not considerable to start with, seems to be melting away.

The Singapore Exchange still has options: it can walk away, or it can make the offer a genuine merger of equals with an equal number of board seats for both exchanges and an increase of the consideration of ASX shareholders to 50:50 from 45:55. SGX shareholders will eventually object to giving too much away, and it is unlikely to placate the politicians because for them it’s more a question of selling the farm than it is about the future of the exchange.

Woodside Petroleum (WPL): With the focus back on oil and gas, I think you’ll see a resolution to the Woodside takeover question soon, be it via acquisition or another strategic shareholder buying Shell’s stake and squatting on the register.

Woodside finally cracked the $45 barrier for the first time since November on Monday because it’s a natural supplier of LNG if Japan needs more, and it’s also the furthest ahead in gas development in Australia. The big coal seam gas projects in Gladstone are still some way off whereas over on the North-West Shelf, Woodside is already in production with more to come on stream by the end of the year.

What has held the share price back is Shell’s overhanging 24% stake, but Shell is now on record as being a committed seller and will probably get an even better price now. With Don Voelte on the way out and no successor named, it’s almost as if the stars are aligning for a bid. If I were a predator, I’d be thinking that the next few months would be the time to take Woodside out.

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

-Takeover action, March 14-18, 2011
Date	Target	ASX	Bidder	(%)	Notes
14/03/2011	Anchor Resources	AHR	China Shandong Jinshunda Group	5.14
16/03/2011	Aragon Resources	AAG	Westgold Resources	23.75
14/03/2011	Austereo Group	AEO	Southern Cross Media Group	16.62
16/03/2011	Auzex Resources	AZX	GGG Resources	8.50
3/03/2011	Brockman Resources	BRM	Wah Nam International Holdings	27.50
17/03/2011	Crane Group	CRG	Fletcher Building	61.84
10/03/2011	EDT Retail	EDT	EPN Investment Management	48.00
21/02/2011	FerrAus	FRS	Wah Nam International Holdings	16.79
22/12/2010	Frankland River Olive Company	FLR	Toscana (WA)	19.36	Recap bid by related company.
15/03/2011	Jabiru Metals	JML	Independence Group	28.57
1/02/2011	Kresta Holdings	KRS	Wildweb Enterprises	0.00
24/02/2011	Laguna Resources	LRC	Kingsgate Consolidated	69.90	Recommended off-market offer announced
15/03/2011	Mintails	MLI	Seager Rex Harbour	30.34
7/03/2011	Odyssey Gaming	ODG	eBet	0.04
3/03/2011	Riversdale Mining	RIV	Rio Tinto	18.74
17/03/2011	Sphere Minerals	SPH	Xstrata	75.70	Unconditional.
17/03/2011	Stuart Petroleum	STU	Senex Energy	63.43
23/02/2011	White Canyon Uranium	WCU	Denison Mines	19.90
Schemes of Arrangement
7/03/2011	Ascent Pharmahealth	APH	Strides Arcolab	60.00	Vote April.
25/10/2010	ASX	ASX	Singapore Exchange	0.00	Parties announce agreement. Vote Mar 2011.
18/11/2010	AXA Asia Pacific	AXA	AMP	0.00	Vote end Mar.
15/03/2011	BC Iron	BCI	Regent Pacific Group	19.90	Regent to withdraw.
17/01/2011	CPI Group	CPI	PagePack (AU)	0.00	Vote April.
17/03/2011	ING Industrial Fund	IIF	Goodman Group consortium	0.00	Approved.
17/03/2011	Mantra Resources	MRU	ARMZ Uranium Holding Co	0.00	Terminated.
21/02/2011	Redflex Holdings	RDF	Carlyle Group-Macquarie Group	0.00	Vote May.
12/01/2011	RP Data	RPX	CoreLogic	40.20	Vote April.
14/02/2011	Sylvastate	SYL	Whitefield	0.00	Vote April.
29/12/2010	Tower Australia	TAL	The Dai-ichi Life Insurance Company	29.00	Vote Q2 2011.
Backdoor Listing
8/02/2011	Millepede International	MPD	Cool D'Fine	0.00	Marine HVAC provider.
Foreshadowed Offers
21/01/2011	Amadeus Energy	AMU	Unnamed party.	0.00	Unsolicited proposal.
2/03/2011	Austar United Communication	AUN	Foxtel	0.00	Talks with controlling holder.
30/12/2010	Berkeley Resources	BKY	OAO Severstal	0.00	Talks continue.
10/12/2010	Bravura Solutions	BVA	Unnamed parties	0.00	Indicative scheme approaches.

Source: News Bites