Ten: The billionaires' TV club

PORTFOLIO POINT: There's a good reason why corporate heavyweights are buying into Ten Network: Influence.

Ten Network (TEN). The television network may very well be a turnaround story; it’s also fast becoming a way for Australia’s billionaires to make sure they can be heard. Less than a few weeks after the television network handed over board seats to James Packer and Lachlan Murdoch, Western Australia’s iron ore empress Gina Rinehart will take delivery of her own board seat at Ten after purchasing a 10% stake for $165 million or $1.58 per share.

Several weeks ago it became clear to me that the stakes being purchased in Ten weren’t necessarily a precursor to a full takeover. What is really going on is that Packer and Rinehart are buying influence. Packer’s main interests are casinos and he will want some media muscle if he decides to proceed with taking the remaining casinos off Tabcorp after the demerger.

Rinehart, on the other hand, was blind-sided by the government’s resources rent tax and will be taking out some insurance to make sure that if something like that happens again she will have an avenue to make some serious waves. When you compare the scale of the investments in Ten to the amount of money both have tied up in their primary businesses, of casinos and iron ore respectively, it’s really quite obvious. We are talking about a hundred million versus billions of dollars and Ten is really the only remaining media asset where they can have that kind of influence.

As an aside, I can see a real investment opportunity emerging with radio. In the past AM radio was the poor cousin of FM but with the advent of digital radio technology the sound quality from both will be identical.

Now this is interesting because, depending on the city, FM licences go for about $40–60 million yet AM licences change hands for almost nothing. Pacific Star Network (PNW) for instance, with a market cap of $18.7 million, leases its two Melbourne AM licences for effectively nothing because of the sound degradation associated with AM radio. Once they go digital, however, you won’t be able to tell them apart and this has obvious implications for companies such as Austereo (AEO), which owns a bunch of metro FM licences, and Fairfax (FXJ), which owns a selection of metro AM licences. So, if you’ll pardon the pun, stay tuned on this developing story.

Rio Tinto (RIO). Following the collapse of its WA joint venture with BHP, Rio Tinto says it is on the hunt again for mid-tier iron ore acquisitions, which is good news for shareholders in those companies, although I wouldn’t start celebrating just yet. Rio is Australia’s biggest iron ore producer and the competition regulator is starting to look at everything it does so it might think it’s easier to buy companies in Africa than Australia.

Fortescue Metals Group is too big for Rio to be allowed to take over now but, generally speaking, if there are assets near where the miner already operates they’re the ones it will look at first. So if you get the map out then Mt Gibson Iron is a pretty obvious target

Brockman Resources is also a pretty good one (see Iron ore’s best bets). The $932 million all-scrip bid by Hong Kong limousine company Wah Nam for Brockman Resources put the company in play, and FerrAus has indicated it will consider offers better than the 6 to 1 scrip bid it received from Wah Nam.

Of course there are plenty of ASX listed iron ore companies with African assets so you never really know, especially given the enormous number of mid-tier iron ore companies out there. It could be like finding a needle in a haystack. However, one of my rules is to look at those companies that have received bids before and on that basis you can really narrow the field a bit.

AMP/AXA. Some corners of the press have been reporting that hedge funds are deliberately shorting AMP in order to get a higher portion of the cash part of the bid for AXA Asia-Pacific, but that’s just nonsense. A lot of people – journalists included – don’t understand how hedge funds operate so I’ll tell you what is going on.

AMP is paying 48¢ a share in cash and 0.73 shares for every AXA share. AXA SA is topping up the balance in the $13.3 billion bid if AMP’s shares fall below $5.60, when they are priced over on the volume weighted average price (VWAP) in April.

The funds are simply hedging: they’re going long on AXA and short on AMP. The problem for hedge funds is normally they know the VWAP ratio but this time they don’t, so what they will be doing is trying to match the market VWAP. Some are doing it now because the market may fall and others will do it in April. They’re no more trying to force AMP’s price down than they are hedging their exposure.

The latest misguided rumour doing the rounds is that people are saying that the bid is still subject to AMP doing due diligence. AMP and AXA Asia Pacific have signed the documents to start the takeover of the wealth manager, but people are quick to bring up AMP’s reputation for botching some critical deals and questioning whether it can get this over the line. I believe it will be done. AMP chief executive Craig Dunn knows what he has to do and needs to do the acquisition. I think it’s going ahead and if you buy in at today’s prices then you will probably make 5–6% over six months, which is about double what you will make from a bank account over the same period – if you can handle the risk.

Impress Energy (ITC). There are a couple of aspects of Beach Energy’s bid for Cooper Basin neighbour Impress Energy I wanted to share with you today. The bid on the table from Beach Energy is 8.25¢ a share, valuing the oil and gas minnow at $73.1 million. Impress has been hovering around the 5¢ mark for most of the last year so on paper it looks attractive.

But I was looking through the shareholder register last week and, sure enough, Victoria Petroleum (VPE) also owns 10.2% of Impress and has joint ventures in a couple of assets. It really wouldn’t surprise me if they decided they didn’t want Beach, which now owns 19.9% of the company, to buy any more.

I always look at the strategic shareholdings, and the question here is whether Victoria Petroleum is going to be happy about this bid. My bet is probably not. They might be happy with the current arrangement and quite confident that the business could be worth 20–30¢ in a year’s time, which is presumably what Beach thinks or it wouldn’t be trying to buy them.

The takeover is conditional on 75% shareholder acceptance so Victoria Petroleum’s 10% isn’t enough to block the offer. I’m just saying there’s another strategic shareholder here who has the capacity to do something and these situations are always worth paying attention to.

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

-Takeover action, November 22-26, 2010
Date	Target	ASX	Bidder	(%)	Notes
25/11/10	Aevum	AVE	Stockland	94.78
25/11/10	Apollo Gas	AZO	Dart Energy	91.73	Bidder's statement despatched; offer closes Dec 2
23/11/10	Argent Minerals	ARD	US Nickel	27.40
11/11/10	Brockman Resources	BRM	Wah Nam International Holdings	21.11
25/10/10	Citadel Resources	CGG	Equinox Minerals	19.90	Recommended takeover announced
22/11/10	Clever Communications Australia	CVA	BigAir Group	0.00
12/11/10	Copper Strike	CSE	Kagara	17.22	Rejected.
25/11/10	Entellect Solutions	ESN	Mooter Media	68.30
11/11/10	FerrAus	FRS	Wah Nam International Holdings	19.90
22/11/10	Indigo Properties Australia	IPA	DK Northern Investments	0.00
25/10/10	Laguna Resources	LRC	Kingsgate Consolidated	11.33	Recommended off-market offer announced
22/10/10	Northern Energy	NEC	New Hope Energy	4.94	Offer rejected.
24/11/10	Padbury Mining	PDY	Fe Ltd	1.35	Bid lapses.
24/11/10	Sphere Minerals	SPH	Xstrata	73.31	Unconditional.
Schemes of Arrangement
29/10/10	Andean Resources	AND	Goldcorp	19.90	Vote Dec 3. Court approves bid.
25/10/10	ASX	ASX	Singapore Exchange	0.00	Parties announce agreement. Vote Mar 2011.
04/11/10	Avoca Resources	AVO	Anatolia Minerals Development	0.00	Vote Jan/Feb 2011; FIRB approval received
18/11/10	AXA Asia Pacific	AXA	AMP	0.00	Vote end Mar.
26/11/10	Choiseul Investments	CHO	Milton Corporation	11.90	Approved.
20/10/10	Dominion Mining	DOM	Kingsgate Consolidated	0.00
22/11/10	Impress Energy	ITC	Beach Energy	19.90	Vote March.
15/11/10	ING Industrial Fund	IIF	Goodman Group consortium	0.00	Due diligence.
18/11/10	Innamincka Petroleum	INP	Drillsearch Energy	0.00	Vote Dec 14.
20/10/10	ITX Group	ITX	Avnet	0.00	Vote Nov 29.
12/11/10	MAC Services Group	MSL	Oil States International	19.90	FIRB approves scheme.
04/11/10	Provet Holdings	PVT	Henry Schein Inc	0.00	Scheme booklet registered; meeting Dec 9
25/11/10	Ross Human Directions	RHD	Peoplebank Holdings	0.00	Adjourned to Dec 16.
06/07/10	Sylvastate	SYL	Whitefield	0.00	Common CEO.
25/11/10	Wridgways Australia	WWA	Santa Fe Holdings	0.00	Approved.
Foreshadowed Offers
03/06/10	BOOM Logistics	BOL	Archer Capital, McAleese Group	10.47	Indicative scheme proposal.
12/11/10	Caledon Resources	CCD	Guangdong Rising Asset Management	0.00	Possible scheme. FIRB-approved.
15/10/10	Indophil Resources	IRN	San Miguel Corporation	10.10	Binding exclusivity period to Jan 10.
23/11/10	ING Real Estate Healthcare Fund	IHF	Northwest Value Partners	0.00	Indicative proposal.
27/10/10	Perpetual	PPT	Kohlberg Kravis Roberts & Co	0.00	Perpetual to meet with KKR
22/10/10	Redflex Holdings	RDF	Unnamed third parties	0.00	Discussions progressing.
15/11/10	Ross Human Directions	RHD	Chandler Macleod Group	0.00	Due diligence.

Source: News Bites