Morgan Stanley's wriggle room

Investa. Is the monster $6.6 billion Morgan Stanley takeover of local property group Investa on the rocks?

That's the question on everyone's mind in the REIT market as a string of similarly timed private equity deals, including Qantas and Flight Centre, go cold.

Plenty of investors escaped to the relative safety of listed property last week as the sub-prime mortgage meltdown extended to credit markets. But in a cruel twist, this also might be responsible for derailing US-based Morgan Stanley Real Estate’s $6.6 billion bid for Investa, the owner of some of Australia's best CBD real estate including 120 Collins Street, Melbourne.

The Morgan Stanley offer document contains a clever caveat buried away where Morgan Stanley’s arrangements for finance are spelt out. The document refers to 'material adverse change conditions’, which include 'sustained material adverse dislocation in the Australian or international financial markets due to terrorism, political unrest, natural calamities or material economic crisis’.

What this means is that if Morgan Stanley is having any trouble in digesting this deal, it can point to both its conditions with its financiers and the most recent credit crunch as enough reason to call it off.

The original Morgan Stanley offer represented a 14% premium to the closing price of $2.69 on May 30 and a 56% premium to the value of Investa's net tangible assets as of December 31. As soon as the offer was unveiled, the price of Investa and a string of Australian LPTs soared. - Investa is trading today at about $2.8

Now, I’m not saying Morgan Stanley will yank it, but this gives a little bit of wiggle room if it is needed. And the beauty of this for Morgan Stanley is that the only break fee is $20 million payable by Investa to Morgan Stanley.

Healthscope/PrimaryHealthcare/Symbion. As Ed Bateman's Primary Healthcare continues to build a stake in Healthscope's takeover target Symbion, the new question is whether Primary is actually building a stake in Healthscope?

Before the market opened this morning Primary had a 16.2% stake in Symbion; the most Primary can acquire without launching a takeover is 19.9%. Healthscope, on the other hand, need 75% approval from shareholders, which will be difficult to achieve given Primary’s growing stake.

Some have said that they believe Primary is planning to spoil the bid and others have speculated it is trying to get a seat at the table when Symbion is carved up. It's a conundrum. I must say I’m uncertain as to whether Primary is actually capable of launching a full bid for Symbion. Symbion is still trading below the offer Healthscope offer price of about $4.30. If you look at it this way then Primary is getting a heavy discount into Healthscope through its accumulation in Symbion, which could be part of a much longer term plan.

The scheme meeting is not until September so I'll be watching this one very closely until then.

Adelaide Bank. Bendigo Bank has made an all-scrip offer for Adelaide Bank – 1.075 Bendigo shares for each Adelaide share. Of course it wasn’t that long ago that Bendigo Bank fended off a bid from the Bank of Queensland. Although it was never made public, it was rumoured that there was two bids and that the second bid was more than $19 a share, which is a huge premium. It’s hard to imagine that a counter-bid could emerge for Bendigo because at current price/earnings estimates it’s probably the most expensive bank in the world.

Additionally, from what we’ve seen the board is not agreeable to be taken over even with a significant premium factored in. I think the issue here is: will Adelaide attract a bid? I think there is a 50% chance of this. There’s only so many banks now left in Australia that can be taken over as a consequence of the 'Four Pillars’ policy. This is going to be one of the few opportunities left to consolidation at this point. Having said that, Adelaide Bank isn’t the most attractive of banks and given the volatility in the market if you were going to buy Adelaide Bank you would want to short Bendigo Bank.

Brambles. It only been just a few months since Toll and Asciano demerged into separate companies and just last week they both turned up on the register of Brambles independently. Now Brambles was trading at three-year lows because of general underperformance, having recently wound up its own dual listing late in 2006. It’s not entirely unusual that both companies have bought stakes in Brambles because the management teams would have previously worked together at Toll and it’s a fair bet that they share views on a lot of things. Now both Asciano and Toll have said that they don’t intend to make a bid in the near term, but they see Brambles as a good investment. I’ve seen plenty of companies say that before and more often than not it’s a prelude to a bid at some stage. So Brambles shareholders should watch that space because either of those companies could make a bid for it.

Coles Group. There was good news for Coles shareholders last week with the announcement that Wesfarmers was going to revisit its dividend policy and pay out $2 a share. Fully franked that’s about 5%, which is pretty substantial and Coles saw some support in the market and finished higher in what was a tough week. The next phase of this will be the release of the independent expert’s report. If the independent expert finds the offer fair and reasonable then the Coles board won’t be in a position to reject the bid on the basis of price. Having said that, I don’t really think the board has much of a choice because there aren’t any other bidders around. KKR isn’t going to reappear with $15.25 cash. Wesfarmers has said it does not intend to sweeten the deal, but hasn’t ruled it, out so has left itself with a little bit of wiggle room to maybe add a bit more cash or a bit more shares or something to the mix. My feeling is that this deal is going to go ahead in its current form.

ConsMins. ConsMins has drifted right back down to about $3.40. Territory Resources was expected to unveil yet another offer – their third – at the Diggers & Dealers conference at Kalgoorlie but it didn’t happen. The word is that Michael Kiernan of Territory is seeking to have talks with the Ukranian group Privat, which built a 13% stake in ConsMins at very high prices. Now my guess is Privat is more looking to make an agreement to guarantee its supply of manganese and, with a stake of 13%, it certainly can’t be ignored. I suspect it will side with whoever can guarantee supply. Can Territory pay more for ConsMins? Maybe. It will come down to whether Territory can borrow more money at this stage because its scrip has weakened considerably.

nTakeover Action August 6-10, 2007
Date	Target	ASX	Bidder	(%)	Notes
2/08/07	Auspine	ANE	Gunns	27.68	Unconditional.
12/07/07	Avantogen	ACU	Chopin Opus One LP	84.98	Diluted from 87.62%.
20/07/07	Becker Group	BKR	Prime Television .	74.95	Unconditional. Extended to July 26.
17/07/07	Consolidated Minerals	CSM	Territory Resources	0.00	Offer confirmed.
20/07/07	Consolidated Minerals	CSM	Pallinghurst Resources/AMCI	0.00	$3.30 recommended cash offer.
17/07/07	Cumnock Coal	CMK	Xstrata Coal	93.98	Acquired 10.01% in call option with Itochu Coal.
26/07/07	Mackay Permanent Building Society	MPB	Wide Bay Australia	15.65
24/07/07	MTM Entertainment Trust	MME	Ivany Entertainment	83.70	Committed shareholding.
9/08/07	Multiplex Group	MXG	Brookfield Group	32.45	Comprising Brookfield 19.99% and Roberts Family 12.82%. FIRB approval.
6/08/07	Nova Energy	NLE	Toro Energy	66.60	Pre-bid indications of acceptance.
1/08/07	OmegaCorp	OMC	Denison Mines Corp	96.33	FIRB approval.
28/02/07	Queensland Gas	QGC	TCW/Societe Generale	0.00
5/06/07	Rocklands Richfields	RCI	Bowen Energy	0.00
21/06/07	Vietnam Industrial Investments	VII	Prudential Vietnam Securities Investment Fund Management Co and VII director Henry Lam Van Hung	0.00
10/08/07	Vietnam Industrial Investments	VII	Corbyns International	19.30	Off-market offer.
7/08/07	Volant Petroleum	VOL	Sky Energy Investment /Karl Thomson Holdings	99.21	Unconditional. Extended to August 6.
nScheme of Arrangement
9/08/07	Adelaide Bank	ADB	Bendigo Bank	0.00	Vote November.
27/07/07	Alinta	AAN	Babcock & Brown; Singapore Power	0.00	Vote August 15.
4/07/07	Bolnisi Gold NL	BSG	Coeur D'Alene Mines Corp	19.99	No vote date set. Due diligence completed
9/08/07	Coles Group	CGJ	Wesfarmers	12.10	Vote October 25.
4/07/07	Elkedra Diamonds NL	EDN	Vaaldium Resources	0.00
9/08/07	Evogenix	EGX	Peptech	19.99	Committed. Shareholders approve offer.
18/07/07	HPAL	HPX	Salmat	0.00
31/07/07	Investa Properties	IPG	Morgan Stanley Real Estate	0.00	Vote August 22. FIRB approval.
1/08/07	IWL	IWL	Commonwealth Bank of Australia	13.96	Vote October.
3/08/07	Lipa Pharmaceuticals	LIP	CIC Life Sceinces	0.00	Vote October.
30/07/07	Magna Pacific (Holdings)	MPH	Destra Corporation	19.90	Shareholders approve scheme.
6/08/07	Oriel Communications	OCO	FCP Brencorp	0.00	75% acquisition proposed. No vote date set. Implementation agreement signed.
27/07/07	Orion Telecommunications	OTL	M2 Telecommunications Group	0.00	Vote September.
3/08/07	Smorgon Steel	SSX	Onesteel	19.98	Suspended on court approval.
25/07/07	Southern Cross Broadcasting (Australia)	SBC	Macquarie Media Group	16.40	ACCC to assess acquisition.
26/07/07	Symbion Health	SYB	Healthscope	11.10	Vote mid-September.
nForeshadowed Offers
15/05/07	Ausdrill	ASL	Approach from $2 billion party	0.00
10/08/07	City Pacific	CIY	MFS	0.00	Confirms discussions - after AFR article published.
12/06/07	Great Southern	GTP	Unnamed party	0.00	Expression of interest.
2/07/07	Great Southern	GTP	Unnamed parties	0.00	Interest from other partes - following previous expression of interest.
27/06/07	Health Corporation	HEA	Unnamed party	0.00	Non-binding terms sheet.
9/08/07	Panbio	PBO	Medical Innovations (Inverness)	0.00	34c bid not consdierted adequte
9/08/07	Panbio	PBO	Unnamed parties	0.00	Other parties invited to carry out due diligence, along with Medical Innovations.
8/08/07	PCH Group	PCG	Cape Plc	0.00	Discussions terminated.
25/07/07	Viking Industries	VKI	Provik shareholder consortium		Conditional offer at $1.09. Offer due in August.
29/06/07	Warehouse Group	WHS	Woolworths		NZ Commerce Commission declines approval of an offer. Woolworths appeals to NZ High Court.
29/06/07	Warehouse Group	WHS	Foodstuffs Co-operatives		NZ Commerce Commission declines approval of an offer. Foodstuffs appeals to NZ High Court.
nBackdoor Listing
13/06/07	Mark Sensing	MPI	Sonofax Holding	63.00	Due diligence continues.