Wesfarmers ? so close!

Coles. At $17.25 – the top end of the expected range – Wesfarmers’ bid for Coles is a good offer. If you hold Coles stock this is good enough to accept '¦ but don't sign anything just yet. Remember this is a scheme of arrangement and as you can see from the Gloucester Coal story (see below) the extended nature of this sort of offer means a late rival bid could always land on the table.

The scheme of arrangement will not conclude until October. Hang on with the intention to vote for the board-recommended offer, and don't rule out the possibility of a counter-bid.

At $22 billion, the bid is at a 7% premium on the last traded price and it is the biggest takeover we have ever seen in Australia.

The high scrip value reflects the surprise exit of Private Equity Partners of Wesfarmers from the bidding process, though possibility not from the management team.

With $4.25 in cash, 0.2843 Wesfarmers share (per Coles share) and a 25c dividend, the key variable in the deal is the value of the Wesfarmers share. The scrip component of the deal is higher than anyone might have thought at 75%.

The bid recommended by the Coles Group board today assumes a $45 share price, but the Wesfarmers scrip could move higher.

For Wesfarmers shareholders, there is now the prospect of a big rights issue probably pitched at a good discount. I think this will be worth taking up.

The share price may be pushed downwards if the discount on the rights issue is particularly large, but offsetting that downward pressure will be the rush of institutional investors who need to buy Wesfarmers as it becomes a bigger part of the sharemarket index. Institutional investors are notoriously light on Wesfarmers, so this is a significant factor.

You might say things have turned out as I expected, although I did not foresee that almost all the private equity players would have just dropped off the scene. I still thought for instance that Texas Pacific Group would be a serious player in this, because they were the group that actually bought the Myer business and they’ve done apparently very well out of it.

Why did Private Equity Partners back out? Part of the explanation is that debt has suddenly got a bit harder to get. They can’t just walk up to a bank and say, 'Give us a billion dollars for not much’. Second, I think clearly there’s been a deterioration in the Coles business and private equity players, notwithstanding that they say they’re long-term investors – they’re not – the truth is they like to turn things around fairly quickly and it looks like Coles is going to need a bit more turning around. A company like Wesfarmers, which has a history of turning businesses around, can take a slightly longer view.

I don't think Wesfarmers has overpaid, this merger is going to take a couple of years but it’s clearly a company-making event. If it’s done well it will stamp Wesfarmers’ chief executive Richard Goyder as a worthy successor to Michael Chaney. If it’s done badly it won’t be very good for Wesfarmers.

Consolidated Minerals. The bidding war for manganese producer Consolidated Minerals is shaping up as a first call battle with Brian Gilbertston and his Pallinghurst consortium ranged against Michael Kiernan of Territory Mining.

Now, remember Brian Gilbertson once ran BHP. He was the architect behind the BHP Billiton merger a few years ago. Michael Kiernan is the former CEO of Consolidated Minerals, and he left under something of a cloud, it must be said. The Consolidated Minerals share price had underperformed and it dropped to as low as, I think, $1.77 a year or so ago. It’s now a bit over $3. Kiernan clearly knows the Consolidated Minerals assets.

ConsMins is a good play into the steel market. Iron ore is all very well but you have to have the other ingredients for steel, and one of them is manganese.

It's worth noting that manganese is not widely produced around the world; there are only about four main players – in Brazil, South Africa, and a couple of others. So ConsMins, I believe, has about 5% of the world manganese market.

Both the bids are cash and scrip combinations and both guys really want it. Michael Kiernan is using the scrip of Territory Mining.
ConsMins assets haven’t been well run – the share price hasn’t been good recently – but it has a very interesting asset and I think this one has got a fair way to play out.

Gloucester Coal. Xstrata is one of the world's most acquisitive mining companies. In Australia it had great success when it snapped up MIM, but BHP beat it to the punch for Western Mining.

With Gloucester Coal, Xstrata put in a bid and used a scheme of arrangement back in May. The problem with schemes of arrangement is right until the last moment, the bidder is vulnerable to someone coming in and upsetting the applecart, and that’s exactly what’s happened here.

It should have been wrapped up by now but two groups – AMCI and the Noble Group – have each bought 8–9% of Gloucester Coal.

It’s unlikely the scheme will now go ahead because it’s almost certain to fail. If you're holding Gloucester shares you are still in a very strong position. Sure, the bid may fail but you’ve got two big groups, resource groups, that have paid above that bid price for about 10% each of the company. You’d have to think they know a bit about the coal market and think things are looking pretty good. As we saw with other bids that have failed recently – Qantas and Flight Centre – even if the stock drops a little bit at first after a bid dissolves it can rebound very quickly.

The fact that you’ve got Xstrata, AMCI, and Nobel all thinking Gloucester is great value and wanting to buy it, I think should give shareholders a lot of heart. So if I owned Gloucester shares I probably be hanging on to them.

Sigma Pharmaceuticals. Sigma has been sold off sharply after it failed to bring a winning bid to the table in the battle for the Symbion health group. But it's not over yet,

Sigma is still keeping a very close watching eye on Symbion. Healthscope has the best bid on the table and is negotiating with the ACCC to get it across the line.

This sector is ripe for rationalisation and another perennial takeover target in the sector, API, announced a profit downgrade last week.

The deeper problem for Sigma is that competition in pharmaceuticals is getting a bit stronger. You’ve got a lot of well-known drugs coming out of patent and suddenly they become generics and the profit margins fall through the floor.

Separately, Sigma’s chief executive, Elmo De Alwis, has been running that company for a long time. He’ll be under a bit of pressure but I think there’s also the view that because Sigma’s the natural buyer of so many of these companies, Symbion and API, that it’s sort of suffering a bit because people keep waiting for it to do a deal. Sigma was the fifth-worst performing stock over the 12 months to June 30 when it fell 18%. It looks to me as though it’s a bit overdone because I don’t think Sigma’s fundamentals have changed and it is probably the best run of all the local heath sector companies.

Takeover Action June 25-29, 2007
Date	Target	ASX	Bidder	(%)	Notes
6/29/07	Allstate Explorations	ALX	Beaconsfield Gold	85.60	Closing July 12. Unconditional.
5/15/07	Auspine	ANE	Gunns	25.80
6/8/07	Avantogen	ACU	Chopin Opus One	87.62	Effective May 17.
6/22/07	Becker Group	BKR	Prime Television	71.29	Paul Ramsay Holdings, with 17.6%, will accept. Closing July 12.
6/28/07	Bremer Park	BML	Walker Corporation	40.84
6/22/07	Colorado Group	CDO	ARH Investments (Australia)	85.95	New offer for balance at $6.20.
6/7/07	K2	KTO	Tomahawk Energy	90.10	Closing May 23. Compulsory acquis.
6/22/07	Magna Pacific (Holdings)	MPH	Lionsgate Australia	12.33	Closes June 29. Unconditional
6/26/07	Marathon Resources	MTN	Crosby Capital Partners Inc	0.00	Offer lapses.
6/25/07	OmegaCorp	OML	Dennison Mines Corp	33.18	Renewal of offer on withdrawal of Central African Mines offer.
6/29/07	Queensland Cotton Holdings	QCH	Olam International	34.03	Free of US Hart Scott Rodino (anti-trust) condition. Closing June 22
2/28/07	Queensland Gas	QGC	TCW/Societe Generale	0.00
6/28/07	Rinker Group	RIN	Cemex Group	83.83	Closing date extended to June 22. FIRB approval. Directors recommend higher offer.
6/5/07	Rocklands Richfields	RCI	Bowen Energy	0.00
6/28/07	Sonnet Corp	SNN	Commoditel	84.93	Closing July 9.
6/29/07	Tourism Holdings	THL	MFS	20.47
6/21/07	Vietnam Industrial Investments	VII	Prudential Vietnam Securities Investment Fund Management Co and VII director Henry Lam Van Hung	0.00
6/26/07	Volant Petroleum	VOL	Sky Energy Investment/Karl Thomson Holdings	94.42	Unconditional
Scheme of Arrangement
4/11/07	Alinta	AAN	Babcock & Brown; Singapore Power		Vote mid-August
5/3/07	Bolnisi Gold NL	BSG	Coeur D'Alene Mines Corp	19.99	No vote date set.
6/20/07	CCI Holdings	CHL	Bureau Veritas	19.90	Court approves scheme.
6/8/07	Consolidated Minerals	CSM	Pallinghurst Resources/AMCI		Vote July 9.
5/7/07	Evogenix	EGX	Peptech	19.99	Committed. Vote due August.
6/21/07	Flight Centre	FLT	Pacific Equity Partners	0.00	Sale of business into JV, buyback, div; exit option for small shareholders
6/27/07	GRD	GRD	Transfield Services	0.00	Conditional offer.
6/12/07	Investa Properties	IPG	Morgan Stanley Real Estate	0.00	Vote late August.
5/28/07	Macquarie Prologis Trust	MPN	Prologis	0.00	Vote June 27.
6/15/07	Magna Pacific (Holdings)	MPH	Destra Corporation	0.00	Vote July 30.
6/21/07	Oriel Communications	OCO	FCP Brencorp	0.00	75% acquisition proposed. No vote date set.
6/29/07	Orion Telecommunications	OTL	M2 Telecommunications Group	0.00
4/13/07	Scarborough Minerals	SRB	MinSec BVI	0.00	Vote June.
6/22/07	Smorgon Steel	SSX	OneSteel	19.98	ACCC not to intervene in proposed offer. Vote July 31.
5/29/07	Symbion Health	SYB	Healthscope	0.00	Vote August.
6/22/07	Veda Advantage	VEA	Pacific Equity Partners and Merrill Lynch Global Private Equity	0.00	Court approves scheme.
Foreshadowed Offers
5/15/07	Ausdrill	ASL	Approach from $2 billion party	0.00
4/5/07	Coles Group	CGJ	Wesfarmers/Macquarie Bank consortium	12.80	Indicative scheme of arrangement offer
6/28/07	Coles Group	CGJ	TPG Group	0.00	Coles confirms that meetings continue. Alternative proposal.
6/29/07	Consolidated Minerals	CSM	Territory Resources	0.00	Board rejects proposal
6/25/07	Evans & Tate	ETW	Ferngrove Vineyards	0.00
6/12/07	Great Southern	GTP	Unnamed party		Expression of interest.
6/27/07	Health Corporation	HEA	Unnmaed party	0.00	Non-binding terms sheet.
6/12/07	Multiplex Group	MXG	Brookfield Asset Management	29.80	Board supports offer.
6/21/07	PCH Group	PCG	Cape Plc	0.00	Re-start of takeover negotiations
4/17/07	Southern Cross Broadcasting	SBC	Macquarie Media Group	0.00	Continuing discussions.
6/27/07	Viking Industries	VKI	Shareholder consortium		Conditional offer at $1.09. 2-3 week delay on formal offer. Offer expected first week of July.
6/15/07	Warehouse Group	WHS	Woolworths		NZ Commerce Commission declines approval of an offer. Woolworths appeals to NZ High Court
6/29/07	Warehouse Group	WHS	Foodstuffs Co-operatives		NZ Commerce Commission declines approval of an offer. Foodstuffs appeals to NZ High Court.
Backdoor Listing
6/13/07	Mark Sensing	MPI	Sonofax Holding	63.00	Due diligence continues.

Source: NewsBites