Media merger likely to lose transmission

The failure of Labor’s proposed media reforms would make a merger between Nine and Southern Cross less likely.

Summary: A planned merger deal between Nine and Southern Cross would likely fail if Labor’s controversial media reforms fall through, while Carsales has moved on iCar Asia, and TPG could have iiNet in its sights.
Key take-out: The chance of a merger between Southern Cross and Nine Entertainment is now fairly limited.
Key beneficiaries: General investors. Category: Portfolio management.

Southern Cross (SXL)

It’s looking less and less likely that Labor’s controversial media reform package will be approved in Parliament. The reforms have been debated this week and a number of independents have already indicated they will vote against the package. Personally, I think the government has backed itself into a terrible corner and I can’t see all the reforms getting through.

What this means is that the chance of a merger between Southern Cross and Nine Entertainment is now fairly limited. Whether or not Labor will push ahead separately with changes to the 75% reach rule, we just don’t know, but the whole thing has been so toxic for the government, I don’t think they will.

I still think Southern Cross is a good stock to hold, but obviously investors have also discounted the possibility of the reforms going through. The share price is down to $1.55, below where it was before Stephen Conroy’s announcement.

iCar Asia (ICQ)

Car classified site Carsales.com has just taken a 19.9% stake in iCar Asia Limited, which operates websites in Thailand, Malaysia and Indonesia. Carsales paid 37.5 cents a share for its stake, and already since the announcement iCar’s share price has risen to about 41.5 cents.

Carsales chief executive, Greg Roebuck, said the acquisition was a means of attaining “a strategic stake in the leading portfolio of online automotive business across the high growth ASEAN region.”

I think Carsales may lend its expertise to iCar Asia to drive growth in the region in the near term, but further down the track it could eventually look to launch a full takeover of iCar. In any case, I think it’s a good opportunity to buy into iCar now while it’s still cheap. Investors who buy in at current prices will be paying just slightly above what Carsales paid. Personally, I see very little downside, and a lot of potential upside. 

iiNet

Earlier this week, M2 Telecommunications, a provider of online and mobile phone services, announced the planned acquisition of rivals Dodo Australia and Eftel Group for a combined $248 million. As I said late last year, I think we will likely see further consolidation among the second-tier telcos ahead of the rollout of the National Broadband Network, and my preferred takeover target is iiNet (see: The top takeover targets for 2013).

As the NBN rollout draws closer, the second tier telcos are having to give more consideration to consolidation in order to increase their customer base. On the back of this, speculation is mounting that TPG could soon launch a takeover of rival iiNet. iiNet is a good business in its own right, and its share price has risen over 60% in the past year. At the current price of $4.85, I think there is potentially a lot of upside for investors.

Australian Infrastructure Fund (AIX)

AustralianSuper hasn’t taken any further action against Australian Infrastructure Fund or the Future Fund, so this is a bit of a wait and see right now.   

Essentially AustralianSuper is upset because it wanted the right to buy AIF’s stake in Perth Airport, and the Future Fund has bid a price that it can’t possibly match. It may still try and take the Future Fund and AIF to court, but I still don’t think a court action would be successful. The main concern, and the reason the share price has fallen 2%, is the risk of a delay to the payment expected in April. That’s where the bulk of the return lies for investors.

That said, I still think the deal will go ahead. And it looks like I’m not the only one. Both Deutsche Bank and UBS, acting on behalf of various hedge funds, have in the last week increased their substantial shareholdings in AIF. The hedge funds wouldn’t be buying in at this point if they thought the deal was going to fall over.

I still think it’s a good opportunity, but investors have to decide for themselves if a 6-6.5% return (at the current share price of $3.05-$3.06) is worth it.

GrainCorp (GNC)

Finally, I just wanted to very briefly discuss GrainCorp and Archer Daniels Midland. While there have been no developments announced to the market, I am still convinced that behind the scenes negotiations are taking place.

The stockmarket has risen the best part of 15% since ADM initially launched its bid, so I think it could easily come back with a better offer. The company is doing well and the outlook for soft commodities is as good as it’s ever been.  At the current price of about $12 per share, I can’t see much downside for investors.


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

Takeover Action March 14-20, 2013

DateTargetASXBidder(%)Notes
13/02/2013Central Australian PhosphateCENRum Jungle Resources0.00
16/03/2013EftelEFTM2Telecommunications Group19.90Pre-bid arrangement
7/03/2013EngencoEGNElphinstone Group64.35
18/12/2012Firestone EnergyFSERange River Gold0.00
8/03/2013Gujarat NRE Coking CoalGNMJindal Steel & Power27.79Ext to Mar 29
8/03/2013LinQ Resources FundLRFIMC Resources97.35FIRB approves. 
4/03/2013Neptune MarineNMSMTQ Corp84.37Unconditional
18/02/2013United OrogenUOGIron Mountain Mining22.93Unconditional
Schemes of Arrangement
24/12/2012Avocet ResourcesAYELion One Metals0.00
11/03/2013EndocoalEOCChina Yima Coal/Daton Group0.00Effective Apr 22
8/03/2013Kumarina ResourcesKMRZeta Resources0.00Vote May 7
18/03/2013SkywestSXRVirgin Australia0.00Shareholders approve. FIRB approves
30/01/2013Sundance ResourcesSDLHanlong Mining Investment17.99Meeting adjourned. Date TBA
Foreshadowed Offers
1/02/2013BerkleeBERBrett Jones - managing director0.00Offer to takeover certain assets
14/01/2013Billabong InternationalBBGAltamount/VF Consortium0.00Due diligence
19/12/2012Billabong InternationalBBGExec Paul Naude Consortium0.00Due diligence
4/12/2012GraincorpGNCArcher Daniels Midland19.90Revised indicative offer
5/03/2013Westside CorpWCLUnnamed parties0.00Discussions continue
28/02/2013WHK GroupWHGSFG Australia0.00Non-binding indicative proposal. Discussions continue

Source: NewsBites