Multiplex moves

Multiplex: The market has been waiting for private equity action in the property and construction sector. This morning, February 5, the action started with the announcement that US-based Brookfield Asset Management was in talks to buy Multiplex. Any move by Brookfield on the listed Multiplex will be done in conjunction with Roberts Family Nominees (RFN), the private company associated with Andrew and Tim Roberts, the sons of the late John Roberts, who founded Multiplex.

Multiplex has been under pressure for some time. Obviously the troubled Wembley stadium development in the UK has been a millstone around its neck. It is an attractive candidate for a takeover because although Multiplex is best known for construction and development, the company also includes a large property trust. Some observers believe the trust’s activities represent more than three-quarters of Multiplex’s market capitalisation.

So you can buy the company, spin off the property trust and let the Roberts family have the more risky construction and development arm, which they had privately in the first place, and probably make some money on the turn. The pressure will now be on Multiplex, however, to extract a deal simply because the market has pushed the shares up in anticipation of it.

Although Multiplex shares have waned in recent days in the absence of information from Brookfield, today's announcement, that Multiplex and Brookfield directors will bid for Multiplex, was light on detail but enough to lift by the shares by 7% to $4.87.

Qantas: The announcement that Treasurer Peter Costello will have the Foreign Investment Review Board (FIRB) review the $11 billion Macquarie Bank-led private equity bid for Qantas bid highlights the political risk surrounding this deal.

Airline Partners, the bidding party for Qantas, consistently maintained that the bid does not need to be referred to the FIRB because it doesn’t count as a foreign bid; that is, there is a majority Australian ownership within it. However, the political aspect of the deal is that Costello has obviously been exerting pressure (and remember the FIRB reports to him), to say: 'Look, we do need independent assessment of this’. Now why the FIRB has to be the assessor I think is rather strange.

If someone was taking over Virgin Blue it wouldn’t attract nearly the same level of scrutiny. Qantas gets a lot more attention because it has a kangaroo on its tail.

I think the Qantas price will probably continue to trade at a small discount, of about 5%, to the bid price of $5.60 simply because there is some uncertainty. Hedge funds are moving in an out of this stock.

I think that ultimately this bid will go through because FIRB has to be objective and the Treasurer has to be objective. Unless there’s a legal objection to something like this then it’s very hard to knock it back. Moreover, it will go through at $5.60 because the bidders have already said the price is final.

Now there was some talk that they might have to actually increase the bid price in light of the falling oil price. Cheaper fuel means Qantas’s profit outlook is substantially better than originally forecast but the bidding parties have stated that the bid is final and, according to takeover laws, once you say a bid is final that is it, you can't change your mind.

Newcrest: The gold miner Newcrest has two big problems. It has got a hedge book that is costing it money; that is, it has forward sold gold at lower prices and it’s probably locked in US dollar exchange rates that haven’t been to its favour. The only way to get out of bad hedging is to produce and fill out the hedge. The same has happened with the country’s uranium producers such as ERA. ERA shareholders are not actually getting the advantage of high prices because ERA has already forward-sold its uranium.

What's more, Newcrest has a huge development at Telfer in WA but it has just been plagued with problems and so its production is consistently below what the company has been forecasting. My view is that until those issues are sorted out you probably won’t see a bid. Why should anyone take the risk on the commissioning of the new Telfer mine when it can allow the company to keep taking that risk itself.

Origin Energy: People are saying Origin is a sure-fire way to make money in the energy shakeout. I think it’s too early to tell. I mean in the sort of energy distribution retailing space, you’ve got AGL and Origin. You’ve also got of course Alinta, which is the subject of both the management buyout and conceivably there’s other parties such as Babcock & Brown having a look at it as well. The overall valuation of all these companies has gone up dramatically and yet they all compete with each other and I would question the extent to which there will be value there.

Origin’s a clear target but don't forget Alinta either. There are stories out there that Alinta will go out for more than $17 a share versus its current share price of $14. It's worth recalling that when Alinta was originally proposed merging with AGL they put a value on themselves of $17 a share when their share price was around $10.

So it would be difficult for the directors of Alinta to accept a bid at less than $17. There’s clearly some room for the price to increase further.

APN: Tony O'Reilly has come back for a second time to try and privatise the regional newspaper and media group APN. In a deal that has similarities with what may happen at Multiplex, O'Reilly, who already controls APN, is now using a private equity group to finance his privatisation bid.

The initial bid, which actually fell apart because the financing side of it did not work out, was $6.02 a share. The new bid is at $6.05. I think there are three independent directors of APN and the pressure is on them now to assess this bid and see whether it’s in the interests of all shareholders.

I believe they’re getting an independent expert to do a valuation of the company. There’s some dispute over the profit number that the bidders are using versus the company’s actual profit number. All up I think there’s a 50:50 chance that O'Reilly and his partners will increase the bid again but it wouldn’t be a big one '” perhaps 20–25¢ a share, which is only a 4–5% increase.

Remember the average increase in takeover bids over the past 10 years is about 18%, so 5% at APN would be a small increase. The stock is trading at $6.05–6.08 so you can buy it and you might lose half a percent or you might make 4–5%. It’s not a bad trade off.

Media: All the players are dancing and dancing and dancing because until the new media laws come into force '” and they haven’t even passed through Parliament yet '” and are promulgated, only then can some of these real mergers take place. Southern Cross is now talking about it is not talking to anyone!

Macquarie Group owns 15% of Southern Cross: it is a nice diversified media company. Again valuations across the overall sector have gone up so much that it’s difficult to justify big increases from here on in, but it’s worth noting that in Southern Cross’s case, Macquarie Media paid $16.50 a share and the stock is currently trading at $16. So if you think Macquarie Media know what they’re on about as a shareholder you can buy the same share they’ve bought at a cheaper price.

The possibility of a bid for an expanded Fairfax empire remains alive and, of course, the other big takeover to look forward to this year is the Ten Network.

The Winnipeg-based CanWest, the majority owner of Ten Network, has said it wants to sell this year. It needs to sell and you've got Rupert Murdoch there all the time saying he wouldn’t touch a TV network in Australia, but then again he might do just that.

nTakeover Action January 29-February 2, 2007
Date	Target	ASX	Bidder	Hldg (%)	Notes
21/12/06	Adsteam Marine	ADZ	SvitzerWijsmuller Marine	19.74	Closing date extended
29/01/07	Agincourt Resources	AGC	Oxiana	19.90	Recommended offer of 0.65 shares for 1 (worth $1.92)
2/02/07	Angus & Coote Holdings	ANC	Prouds Jewellers	92.35	Closing date extended to February 16
22/12/06	Avantogen Ltd	ACU	Chopin Opus One LP	77.35
31/01/07	Bakehouse Quarter Fund	BQF	Pelorus and directors	62.00	Pelorus and directors reviewing options
29/12/06	Chiquita Brands S Pacific	CHQ	Timbercorp Ltd/Tradefresh	80.75
16/11/06	Colorado Group	CDO	ARH Investments (Australia)	83.71
12/01/07	Dark Blue Sea	DBS	Photon Group	19.88
12/01/07	Evans & Tate	ETW	Yarraman Winery	21.12
2/02/07	Grand Hotel Group	GHG	Kara Investments/Morgan Stanley Real Estate	76.10
29/01/07	Marathon Resources	MTN	Crosby Capital Partners Inc	0.00	Closing date extended to March 6
29/01/07	MMC Asset Management	MMA	MMC Contrarian	100.00	Acquisition completed.
23/01/07	OmegaCorp	OMC	Denison Mining Corp	0.00
4/12/06	Orion Telecommunications	OTL	Toy Telco/Lewis Securities	7.37
17/01/07	Orchard Petroleum	OPL	Eskdale Ltd	37.42
23/01/07	Pacifica Group	PBB	Robert Bosch GmbH	18.48
2/02/07	Qantas Airways	QAN	Airline Partners Australia	0.00	Bidder's statement despatched
23/01/07	Queensland Gas	QGC	Santos	3.89	Closing date extended to February 7
8/12/06	Rinker Group	RIN	Cemex Group	0.0001	Has 1,000 shares.Closing date extended to 31/03/2007
17/01/07	Stadium Australia Group sec	SAX	Stadium Investments (ANZ Bank)	73.50
1/02/07	Sundowner Motor Inns	SDR	Lend Lease Corporation	74.20	Indicated acceptances of 64.7%
31/01/07	Sydney Roads Group	SRG	Transurban Group	6.10
30/01/07	Symbion Health	SYB	Primary Health Care	6.70	Confidential proposal put to Symbion
30/01/07	Veda Advantage	VEA	Pacific Equity Partners and Merrill Lynch Global Private Equity	0.00	Indicative offer at $3.61
16/01/07	Volant Petroleum	VOL	Sky Energy Investment	1.35
01/02/07	Magna Pacific (Holdings)	MPH	Lionsgate Australia	11.65
nScheme of Arrangement
25/01/07	APN News & Media	APN	News & Media Plc consortium		No meeting date set
2/02/07	AuSelect	AUS	Lion Selection		Vote 3/04/2007
25/01/07	Flight Centre	FLT	BidCo (Management and private equity)		Vote February 28, 2007. Expert endorses offer
31/01/07	PowerTel	PWT	Telecom Corporation of New Zealand	10.00	Vote late April
15/01/07	Promentum	PPR	Pacific Print Group (Australia)		Independent expert report due late Feb/early March
23./10/06	Promina Group	PMN	Suncorp-Metway		Vote 5/03/2007
20/12/06	Rebel Sport	REB	Archer Capital		Vote March 2007
11/12/06	Repco Corporation	RCL	Private eq advised by CCMP Capital Asia		Vote March 2007
nShare Issue
21/12/06	Mermaid Marine	MRM	DP Worldwide (P&O Maritime Services)		Issue of shares for 60.4%, subject to shareholder approval early 2007
nForeshadowed Offers
9/01/07	Alinta	AAN	Management buyout approach
25/01/07	Multiplex Group	MXG	Discussions with third party
4/01/07	Origin Energy	ORG	AGL Energy Ltd
17/01/07	Warehouse Group	WHS	Woolworths Ltd