Talent quest

Investors in recruitment firm Talent2 could see some extra franking credits if a management buyout goes to plan.

PORTFOLIO POINT: The privatisation of recruitment firm Talent2 could see investors receive part of the bid as a fully-franked dividend.

Talent2 (TWO). What’s happening here is essentially a management buy-out, but there’s a hidden possibility of a special fully-franked dividend.

Andrew Banks and Geoff Morgan have decided to privatise the recruitment firm they started, given the share price has languished, and in conjunction with private equity they’re bidding 78c a share.

Talent2 closed today at 75c, but buried away in the documents is the possibility the company may distribute as much of its franking credits as possible. Morgan and Banks are apparently looking into tax advice, or clearance from the Australian Taxation Office, but it’s possible part of that 78c might be paid as a fully-franked dividend. This would add a little bit of value.

The company is currently trading below the bid, which I think will almost certainly go ahead. There won’t be another bid for it, and there’s an opportunity for investors to get some franking credits in addition – which may be good for any investors (though there mightn’t be too many left) with stored up capital gains.

Flinders Mines (FMS). There’s some talk that the legal wrangling holding up this bid, discussed in more detail in prior weeks, is actually being orchestrated by the Russian government because the bidder Magnitogorsk Iron & Steel didn’t ask permission to make the bid in the first place. But it seems a very roundabout way of doing things – why not just be open about it?

The one bit of good news is that the appeal hearing will be held in two days (June 6), in the same court that stopped the bid in the first place. If that appeal isn’t upheld, the deal is as good as dead. I doubt anybody’s still in this, but the share price has rallied from a low of 12c to close at 13.5c today on that small hope. I hope it does go ahead, but don’t buy in – it’s all just too hard.

Iress (IRE). There was speculation in the Australian Financial Review this morning that ASX (ASX) might take another look at Iress, as its share price has slipped 37% in the past year and may offer some attractive exposure.

However, I think given the ASX is looking to buy Link Market Services at the moment, I’d say Iress is off the agenda in the short to medium-term. ASX said on Friday that it was looking to pick up Link from PEP, which is apparently looking for more than $1 billion.

In the longer run, however, I think Iress remains a takeover target.

Nexbis (NBS). One interesting, and much more positive, takeover which I believe the market has been overlooking is Nexbis.

It’s only small, but it has a takeover bid on the table at 10c a share and until a couple of days ago was trading at 9c. The shareholder vote is June 18, which is only a fortnight away, and it closed at 9.3c today.

That’s a return of 8% in five weeks, and as far as I can tell there’s no market condition on this. It already has board approval, so shareholders really just have to vote on it.

The bidder appears credible – I understand it’s a private Singaporean company – and the managing director is staying with the company. This looks like a good chance to make a solid gain, and it appears to have been overlooked because of its size.

Spotless (SPT). Investors should just take a quick look at Spotless, which looks like a safe deal at $2.62 plus a 4c, 95% franked, dividend.

The only thing to watch for is that this bid does have a market condition which, if I’ve worked it out correctly, is triggered if the All Ordinaries falls below 3457 points and stays there for several consecutive days. This is another 10% drop from where we are, but remember we’ve just seen a 10% drop, so it’s not impossible. Even if market conditions are hit, it doesn’t mean the bidder definitely walks away, but these things are often tied to debt financing conditions.

However, as markets get close to these conditions in bid periods, you almost invariably get a chance to buy in at a cheap price.

Norton Gold Fields (NGF). The board has said it supports Chinese gold miner Zijin Mining Group’s conditional off-market cash bid at 25c a share, plus a special 2c dividend once it reaches 50.1% acceptances, which was detailed last week.

However, I would wait before going near this deal because there are a lot of conditions attached.
The takeover is conditional on approval by Australia's Foreign Investment Review Board and Chinese regulatory approval is also required.

Furthermore, under the terms of the deed, it is also a requirement that the spot price of gold doesn't drop below $A1,400 a troy ounce for a 72-hour period of trading in the coming six months. Gold is currently trading around $A1,512.

Norton shares closed at 23c today, but there are enough potential obstacles here to be cautious about buying in.

Elders (ELD). Ruralco (RHL) has bought 10.1% of Elders, and it’s come out and said it has no intention of making a bid. Well, that means nothing.

“No current intention” means that tomorrow Ruralco can wake up and decide to have a current intention, so the question becomes: would it? Elders is a weird mini-conglomerate, but it is still a serious player in the rural distribution business, and in its duopoly with Landmark is still very valuable.

I think the rural sector has a couple of excellent years ahead of it and while this is not a takeover, I do think Ruralco will eventually do something with that stake. It’s definitely one to put on your list of companies that might be taken over.

Consolidated Media (CMJ). Finally, I’ve discussed before the makeup of ConsMedia and its 25% stake in Foxtel, which is relevant for media ownership and competition hurdles. It is looking more and more like News Corp is likely to be the buyer here.

ConsMedia is clearly for sale, and the obvious buyer, Telstra, has ruled itself out of contention, partly because it just wouldn’t be allowed to.

People fully expect a deal to be done. The share price has risen from about $2.60 at the start of the year to close at $3.15 today. Packer is rumoured to want $4 a share, but in the current market he probably won’t get that.

News Corp could buy this without a moment’s thought. It’s not a big acquisition for them, and it would make a lot of sense, since Murdoch has done well out of pay TV over the years. You might see some elements of the government or the Greens jumping up and down about this, but the reality is under the current media ownership laws, I don’t think there’s a problem because News Corp doesn’t own free-to-air TV or radio.

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

-Takeover Action May 28-June 1, 2012
Date Target
1/03/2012 Accent Resources
Xingang Resources
30/04/2012 Alesco
Dulux Group
29/05/2012 Brockman Resources
Wah Nam International
Closing Jun 14
10/05/2012 Coalworks
Whitehaven Coal
31/05/2012 Curnamona Energy
Havilah Resources
30/04/2012 Eureka Energy
Aurora Oil & Gas
31/05/2012 Genesis Resources
Clancy Exploration
15/05/2012 Hastings Diversified
APA Group
Closing Jul 15
29/05/2012 Hydromet
Simon Henry
29/05/2012 Ideas International
Gartner Australia
Pre-bid acceptances
30/05/2012 Magma Metals
Panoramic Resources
Ext to May 10
24/05/2012 Minemakers
UCL Resources
31/05/2012 Norton Gold Fields
Zijin Mining Group
17/05/2012 Real Estate Capital Partners USA Property Trust
Woolley GAL II
Associate holding
21/05/2012 Rocklands Richfield
Shandong Energy
Pre-bid agreement with chairman
31/05/2012 Scandinavian Resources
Hannan's Reward
Compulsory acquisition
29/05/2012 Somerton Energy
Cooper Energy
19% pre-bid agreement
25/05/2012 Thakral Holdings
Brookfield Asset Management
24/05/2012 UCL Resources
Schemes of Arrangement
27/04/2012 Gloucester Coal
Yancoal (Yanzhou Coal)
64.5% holder Noble Group in favour. Vote Jun 4
31/05/2012 Ludowici
30/04/2012 Spotless Group
Pacific Equity Partners
Vote late Jul
11/10/2011 Sundance Resources
Hanlong Mining Investment
Foreshadowed Offers
28/02/2012 Goodman Fielder
Wilmar International
Press speculation
21/05/2012 PMP
TMA Group
Non-binding indicative offer

Source: News Bites

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