Seeds of interest for Nufarm

PORTFOLIO POINT: Nufarm says it has received interest – but no offer – from Sinochem.

Nufarm. There has been a lot of attention on the agricultural front with Nufarm confirming last week that it has received genuine interest from Sinochem, China's largest chemicals trader. That was the good news. The bad news was that it came on the back of an earnings downgrade. Sinochem has said no decisions have been made yet but Nufarm shares have already risen considerably.

Nufarm’s chief executive and major shareholder, Doug Rathbone, is a seller but he probably won’t be pushing for as much as $17 a share – the value of an aborted bid by ChemChina 18 months ago – because of the rout in asset values since then. A bid today is more likely to be in the range of $13–14. If the Sinochem bid disappears chances are that the shares could fall again, just as they did after the ChemChina bid fell apart. Since then the stock has been trading between $8 and $14, although there was a decent rally in the leadup the announcement that pushed it to where it is now – around $11.

This is one of the things about continuous disclosure: in the old days, companies would only announce a bid when it was firmly on the table but now, because of leaks to the media, companies are forced to comment even if a bid is only in the formative phase. If Sinochem weren’t aware of the earnings downgrade, for example, it may be enough to make them walk away from the deal.

While companies like Nufarm are being sought after, they are not necessarily unique. Incitec Pivot is another possible target in the sector but only at the right price. Incitec has been approached before but that didn’t work out so it is certainly one to keep your eye on.

Macquarie Group. Macquarie has sold its management rights to Macquarie Airports and I think they will do the same with Macquarie Infrastructure Group. Macquarie chief executive Nicholas Moore should be congratulated. He said he would remake the bank and is part-way through that. Macquarie used to derive a lot of its profit from running listed infrastructure and real estate funds, which was fine when share prices were going up. Shareholders in the satellite funds also realised that they were getting a pretty raw deal so MAP’s buyback of these rights has pumped a lot of capital back into Macquarie Group’s balance sheet. But it is an interesting tradeoff for future cash flow so the question is, what will they do next?

What people don’t realise is that Wall Street is now bereft of well-capitalised investment banks, and if they do exist they are part of a commercial bank and are not able to do the sort of deals they used to. Investors are still looking to these sorts of banks, so maybe Macquarie will become a giant of Wall Street, using its balance sheet to help companies raise money and doing what investment banks used to do. Goldman Sachs is a very good example of this, having produced a stunning profit turnaround.

Macquarie is really well placed as a global investment bank. Like Goldman, it is one of a small band of survivors. I don’t know what Macquarie will actually do, but I think there are some great opportunities there for them. Having said that, whenever you buy a share in Macquarie you’re not buying a guaranteed income stream. You’re buying a share of the future earnings of some very financially smart people, who are very good at thinking up ways to make money.

Virgin Blue. Virgin Blue has announced a capital raising and there is no doubt they need money. There are two big issues – firstly whether Richard Branson will be able to participate or not. My view is that he will take up some shares but probably not all of them. It is an indication to the market of confidence in the business so if he doesn’t take up his stock then tongues will wag.

Branson is most probably a seller of Virgin Blue. People don’t realise that what he effectively really runs is a big venture capital fund under the Virgin brand. It seeds businesses with its own money, but eventually it does exit them. Virgin has done well out of this, launching at just the right time in Australia. But with everything else Virgin has done in Australia, it has come very late: mobile phones, finance, credit cards and various other things never really worked because of the incumbent competition.

What’s probably of more interest is who takes up the capital raising. If we end up with another airline on the register, such as Air New Zealand, Etihad or Delta, then this could become very interesting indeed.

APN News & Media. Media stocks have rebounded strongly on the revised economic outlook. We’ve covered the Stokes/Packer scramble to fortify their positions in Consolidated Media in previous weeks but there’s been another story brewing over at Tony O’Reilly’s Independent News & Media, which owns a big stake in APN.

There have been rumours that Independent News & Media would look to sell its stake in the ASX-listed APN but it appears that the company has won a reprieve from the banks and may no longer have to resort to such drastic measures. That doesn’t mean that APN isn’t a target. It has a good portfolio of media assets and has been one of the hardest hit. It has FM radio stations, which I think will be the least affected category of old media.

The big issue with APN is the overhang of stock on the market. The question, however, is who would buy it? While it’s possible that an Australian mogul will give it the once-over, it’s just as likely to end up in the hands of a strategic buyer from offshore.

Hastings. This listed infrastructure player needs to reduce its debt and has unveiled a rights issue at 90¢ a share and the stock has begun trading below that level '¦ meaning the issue is at a premium. That’s the problem with the long list of rights issues we are seeing. You’re much better off doing an accelerated placement, where you freeze the stocks and get the issue done in a couple of days. So, if the stock’s $1 you do it at 85¢. Because if you continue to leave it open you run the risk that the stock drifts off, and that’s what has happened with this. So they haven’t handled this one particularly well and it becomes a self-fulfilling prophecy because they either won’t raise as much money as they wanted or if it’s underwritten they’ll end up with an overhang of stock that will take some time to clear.

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

nTakeover Action July 20-24, 2009
Date	Target	ASX	Bidder	(%)	Notes
26/06/09	Arana Therapeutics	AAH	Cephalon	93.06
20/07/09	Bonaparte Diamond Mines	BON	Minemakers	96.81
10/07/09	Bowen Energy	BWN	Bhushan Steel	0.00
23/06/09	Broadcast Production Services	BKR	Prime Media Group	77.34	Offer for the balance. Ext to Aug 28.
06/07/09	Corvette Resources	COV	Cape Lambert iron Ore	19.90
20/07/09	Dioro Exploration	DIO	Avoca Resources	19.03	Dioro board rejects offer.
16/07/09	Drillsearch	DLS	Beach Petroleum	19.36	Drillsearch rejects offer.
07/06/09	Energy Development	ENE	Archer Capital	19.99	Call option by largest shareholder.
16/06/09	Gloucester Coal	GCL	Noble Group	87.71
23/07/09	Great Australian Resources	GAU	Sylvania Resources	44.34	Accepts increased offer.
27/03/08	Heartware International	HIN	Thoratec Corp	0.00	Subject to approvals.
23/07/09	MacarthurCook	MCK	AIMS Securities	87.27
04/03/09	Murchison Metals	MMX	Sinosteel	5.85	Cleared by FIRB to move to 49.9%
23/07/09	North Australia Diamonds	NAD	Legend International Holdings	51.28	North Aust board rejects offer.
16/06/09	Pacifica Group	PBB	Bosch Group	76.60
17/06/09	Rey Resources	REY	Gujarat NRE Minerals	0.00	Rey rejects offer.
10/07/09	Royalco Resources	RCO	Anglo Pacific	31.11	Royalco board rejects offer
23/07/09	SA Metals	PPD	Sylvania Resources	71.71
20/07/09	Target Energy	TEX	Blaze Asset	5.83	Offer ends.
Scheme of Arrangement
19/05/09	ABB Grain	ABB	Viterra	0.00	Vote September.
03/07/09	Chalice Gold Mines	CHN	Sub-Sahara Resources	0.00	Vote August 4.
19/07/09	GRD	GRD	AMEC	0.00
21/07/09	Imdex	IMD	Coretrack	0.00
03/06/09	International All Sports	IAS	Sportsbet	0.00	Vote late September.
11/05/09	Lion Nathan	LNN	Kirin Holdings Company	46.00	Vote Sept/Oct.
24/06/09	Lion Selection	LST	Catalpa Resources	0.00
30/06/09	Sylvania Resources	SLV	Ruukki Group	0.00	Vote October.
21/07/09	Uranio	UNO	Manhattan Resources	0.00	Merger complete.
nBackdoor Listing
15/07/09	Gold Aura	GOA	Anomaly Resources	0.00	Anomaly to hold 61% at end.
28/05/09	Dia-B Tech	DIA	Pallane Medical	0.00	$15m capital raising launched.
nForeshadowed Offers
03/02/09	Felix Resources	FLX	Several expressions of interest	0.00	Discussions continue.
24/07/09	Nufarm	NUF	Sinochem Corporation	0.00	Discussions.
16/03/09	Progen Pharmaceuticals	PGL	Cytopia	5.00	Cytopia seeks removal of board.
04/02/09	Redflex Holdings	RDF	Unnamed parties	0.00	Unsolicited indicative proposals - still inadequate.
27/02/09	Ventracor	VCR	Two unnamed parties	0.00	Discussions continue.
20/04/09	Viridis Clean Energy Group	VIR	Unnamed party	0.00	Discussions.

Source: NewsBites