Media manoeuvrings

PORTFOLIO POINT: Cons Media is an interesting investment play, and Echo Entertainment could also be a fine show.

Consolidated Media Holdings (CMJ).
Positioned at the middle of a three-way intersection between a major media restructuring at News Corp, James Packer’s drive for Echo, and Kerry Stokes’ ambitions for pay TV, Cons Media is a very interesting takeover play.

There is a friendly bid from News Corp (NWS) at $3.50 a share, and Packer, who owns just over 50% of Cons Media, has said he would accept it. That’s interesting in itself, as previously it was rumoured he was looking for $4 – but he’s obviously looking to cash out as it’s clear he has plans for Echo Entertainment.

However, there’s also Kerry Stokes, who owns 24.4% of Cons Media. Stokes’ Seven Group Holdings (SGH) – the listed entity through which Stokes owns Seven West Media (SVM) and WesTrac, along with a few other things – has submitted a proposal to the ACCC for buying the remaining shares in Cons Media. Depending on what the regulator says, it looks like you’ve really got two bidders here, and, while no price is named, presumably it would be at more than $3.50. Stokes can do this trade more easily in one sense, because he has a significant stake already, but things do get a little murky with the ACCC. Also, Cons Media only owns 25% of Foxtel, regardless of what happens, and News Corp (which owns another 25%, and Telstra the remaining 50%) effectively provides the management there.

The stock closed today at $3.40 – and it looks like a good play. You’ve got two bidders with deep pockets, a willing seller in Packer, and the only problems look like regulatory approval and potentially Stokes’ blocking stake if News Corp’s proposal is based on getting 90% acceptances.

It’s hard to say if News would raise its bid – it really comes down to how much they value Foxtel. There’s some who say this could all be meaningless in five years as the internet destroys old-world pay TV businesses, and there’s the BSkyB alternative of bundling pay TV, internet and phone services, but it really depends on what News wants to do.

To me it looks like a case of two cashed-up bidders, and a market that’s not fully pricing that in yet.

Echo Entertainment (EGP).
Assuming Packer gets his money from Cons Media then, it looks as though that money can ultimately go through his private company into Crown (CWN) and potentially move on Echo.

Packer’s at the limit of what he can buy without probity in NSW and Queensland – 10%. Malaysian casino group Genting has moved to possibly as high as 8%, but would also reach that 10% probity ceiling. I think both would get it though, as they have it in other jurisdictions.

So the situation here is not dissimilar to that of CMJ, in that there’s a very high prospect of a bid from either or both parties, but nothing can happen until there’s regulatory approval.

I think if Packer bids, he will do so through Crown, but it’s possible that he will co-operate with Genting rather than compete. However, as soon as it looks like they are doing that they will have to combine stakes under the Corporations Act, and that limits some freedom in terms of shares they can buy.

My sense is that Packer would rather own it outright, and if Genting does get probity it can still only go to 15% without Foreign Investment Review Board approval. Echo shares closed at $4.19 today.

Virgin Australia (VAH), Qantas (QAN).
It seems that Etihad is gradually increasing its stake in Virgin, and Qantas has come out a bit hysterically against it.

There are no real issues with Etihad and Virgin, except if it gets to 20% it has to make a takeover bid as usual, but Qantas is saying it needs the flexibility to raise money or partner with an overseas airline.

I think the most likely outcome is that Qantas de-merges – keeping the domestic businesses as the listed entity and partnering with an international airline for an international JV. Whether that would get around the Qantas Sale Act is unclear, but I suspect it would because you would keep the listed entity as the head stock.

Sundance (SDL).
I’ve criticised this deal before, and I have doubts it’s going to get up, but having said that, the bidder Sichuan Hanlong did receive FIRB approval last week.

Within the next week there will potentially be approval from the key financier in China, and that’s very important as this is where these deals have foundered before.

I maintain that this is a 'wait and see’ situation. There’s no need to buy into it now, because if it all falls apart, and I still suspect it might, you don’t want to be there. Remember, the whole deal is scheduled for November – a long way off – so wait until all the approvals in Africa, in Australia and most importantly, in China, are in place.

Little World Beverages (LWB).
When I first started looking at takeovers in 2005, and was trying to predict targets, this was the first one I ever bought. Now the Little Creatures and White Rabbit brewers have a $5.30 a share offer from Lion Nathan, a subsidiary of Kirin, and it doesn’t surprise me that they’ve finally had a bid.

It’s a high price, but there’s a trend here, and in America and the UK, toward 'craft beers’. Along with Coopers, which is very hard to buy, Little World is one of the major small brewers in Australia. Coopers is not listed, and shares are owned by some Adelaide families and even a few big private schools. Coopers shares, whenever they come up, are very sought after but only trade when a seller appears, and it’s pretty rare.

What this shows is the attractiveness of branded beverages. The only other stock in Australia left of any size is Coca-Cola Amatil, and – with or without the potential for a bid – I think it’s a great stock to own. Coca-Cola Atlanta, the head company, has made it clear that Coke can be bid for in Australia; it just has to be the right entity.

A few years ago you could buy Foster’s, Lion Nathan and CCA if you wanted exposure to this sort of sector. Now there’s just Coke.

Billabong (BBG).
Billabong is a classic example of why it’s usually not a good idea to knock back a takeover bid. Private equity came knocking at $3.30 a share, and founder and major shareholder Gordon Merchant said they wouldn’t accept less than $4. Chairman Ted Kunkel said they wouldn’t need to raise money.

Now they’ve appointed a new CEO, Launa Inman, had another earnings downgrade, and raised a 6-for-7 non-renounceable rights offer (almost doubling the shares on issue) at $1.02. Billabong closed today at 96c coming out of the trading halt.

There are calls for Gordon Merchant to resign from the board and I agree. I think it was a colossal error of judgement, where one person has overtaken what was good for shareholders as a whole. To his small credit, Kunkel has resigned as chairman. Merchant isn’t even taking up all of his rights, which I find amazing. How can he say “I won’t accept $3.30, and yet I won’t put in as much as I’m entitled to at $1.02”. It just seems wrong.

Will private equity come back? Yes, they probably will. Who will they talk to? Gordon Merchant. So it depends on what he says. It would be ethically, morally and financially difficult for him to have a turnaround, but things change. I would want to see more from the new CEO before I would go near Billabong.

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

-Takeover Action June 18-22, 2012
Date	Target	Code	Bidder	(%)	Notes
30/04/2012	Alesco	ALS	Dulux Group	19.98
13/06/2012	Castlemaine Goldfields	CGT	Lion Selection	11.40
10/05/2012	Coalworks	CWK	Whitehaven Coal	52.84
31/05/2012	Curnamona Energy	CUY	Havilah Resources	91.67
30/04/2012	Eureka Energy	EKA	Aurora Oil & Gas	71.30
31/05/2012	Genesis Resources	GES	Clancy Exploration	8.01	Ext July 30
15/05/2012	Hastings Diversified	HDF	APA Group	20.71	Closing Jul 15
29/05/2012	Hydromet	HMC	Simon Henry	91.01
30/05/2012	Magma Metals	MMW	Panoramic Resources	92.24	Compulsory acquisition
24/05/2012	Minemakers	MAK	UCL Resources	0.00
31/05/2012	Norton Gold Fields	NGF	Zijin Mining Group	16.98
15/06/2012	Orion Metals	ORM	Conglin Investment Group	24.17
17/05/2012	Real Estate Capital Partners USA Property Trust	RCU	Woolley GAL II	30.99	Associate's' holding
21/05/2012	Rocklands Richfield	RCI	Shandong Energy	25.27	Pre-bid agreement
29/05/2012	Somerton Energy	SNE	Cooper Energy	92.10	Compulsory acquisition
25/05/2012	Thakral Holdings	THG	Brookfield Asset Management	38.58
Schemes of Arrangement
22/06/2012	Customers	CUS	DirectCash Payments	0.00	Court approves
30/04/2012	Spotless Group	SPT	Pacific Equity Partners	19.64	Vote late Jul
11/10/2011	Sundance Resources	SDL	Hanlong Mining Investment	17.99	FIRB approval
Foreshadowed Offers
28/02/2012	Goodman Fielder	GFF	Wilmar International	5.00-	Press speculation
21/05/2012	PMP	PMP	TMA Group	0.00	Non-binding indicative offer

Source: News Bites