What now for Perpetual?

PORTFOLIO POINT: Now that KKR has walked away, Perpetual’s options are vague.

Perpetual (PPT). The bid for wealth manager Perpetual from Kohlberg Kravis Roberts (KKR) has been dragging on since mid-October when KKR made an indicative bid of $38–40 a share and today was finally knocked on the head. Perpetual refused to let the private equity group look at its books and KKR refused to improve its bid without being able to do its homework.

This deal was always going to be a risky bet. Perpetual today fell right back to the $31.76 a share level it was floating around before the offer, so if you bought at the $37 mark that it jumped to after the bid you’re now looking at the 15% downside.

Perpetual’s options are kind of vague right now. It has a new management team but is still looking for a new CEO so it will be back to the same old slog for the short term. It is not inconceivable, however, that it might be of interest to the merged AMP/AXA Asia Pacific. IOOF might even be interested. The other problem with Perpetual is that its main fund manager, John Sevior, is crucial to the business so a bidder almost has to do a deal with him too. They wouldn’t want to buy Perpetual only to have him leave and set up his own business.

As for KKR, IOOF and Platinum are other potential targets in the same sector that they could now be looking at. But this deal is definitely off. It’s what happens when private equity doesn’t get its own way, they’re happy to walk away because they’re always looking at potential deals and it’s rare that any one deal is make or break for them.

Crane Group (CRG). The bid that was rejected today was New Zealand company Fletcher Building’s $740 million hostile offer for Crane Group, but unlike KKR they aren’t going to walk away so easily. Crane said the bid, made up of one Fletcher share for every Crane share and $3.43 per share cash – for $9.51 on today’s prices – was inadequate and undervalued the company.

As it stands the deal can’t go through because the board has not recommended it, but what makes it interesting is the fact that Fletcher owns 14.9% of Crane and on that basis I think there’s a better than 50% chance it will improve the offer.

Fletcher bought 13.1% from institutions immediately before making the offer. This happens quite often as major shareholders will sell part of their interest to kick off the bidding process and get a higher price for their remaining stake. Now it’s just a matter of haggling over price as Crane will have to come back with what they think is a reasonable offer. This is a difficult one to play because the bid is not going to go ahead in its current form although it appears likely that Fletcher is going to improve the offer, but the thing about taking advantage of these kinds of scrip bid is that not necessarily everyone has the means to do so.

Ten Network (TEN). Something is going to happen with this company and I think it’s going to happen in 2011. James Packer, Lachlan Murdoch and Gina Rinehart all have different reasons for being there but Ten has got a big target on its back.

The four strategic shareholders – Rinehart, Packer, Murdoch and WIN owner Bruce Gordon – aren’t going to sit on these stakes forever, and you’ve got an industry going through substantial change due to the internet, pay TV and the new digital channels.

There could be a takeover, but it’s also possible that Ten becomes a listed acquirer of things: a listed media company that is more than just a television network. Packer could sell his interest in Foxtel out of Consolidated Media and into Ten, or Murdoch may suggest it buys DMG’s radio assets in Australia – of which he owns half.

This is interesting because Ten’s share price has slipped back to around $1.43. If you believe in Packer and Murdoch, and to a lesser extent Rinehart, you have the opportunity to buy in with them at the same price, or within a few cents of it.

We don’t know what their strategy is but if you want to do the follow-the-leader thing as a retail investor, Ten allows you to do so right now and it’s not often you get to do that.

Origin Energy (ORG). I’ve been saying that a deal between Origin Energy and Santos is on the table for a while and it looks like it’s all starting to come together now.

Over the weekend Origin said it was talking to companies such as China’s Sinopec and Thailand’s PTT to sell a stake in its Curtis Island LNG plant in Queensland. It needs to raise cash to start building the project, while Santos has signed up Korea Gas in a $60 billion gas offtake deal so it can also justify building its own massive LNG plant. It makes too much sense for Santos or one of the other big consortiums operating in the same area not to make a play for Origin, once it gets the Thai or Chinese companies signed up.

If you look at a map, there are three separate projects next to each other, which doesn’t make sense from an economic standpoint. They’re all competing to sign up the same customers, financing and workers so for many reasons it would make a lot of sense to merge the businesses and create two, or even one giant entity.

ING Health Fund (IHF). Returning to a takeover I mentioned a few weeks ago, a new bidder has entered the race for ING Health Fund. Canadian group NorthWest offered 95¢ plus a dividend of 3.825¢, which the stock was going to pay anyway, at the end of November. Now an unidentified American group has offered $1 plus the dividend, a 5% increase. IHF is a fairly illiquid stock and was trading at 91.5¢ before the Canadian bid, but is now up around 98¢. NTA is slightly above $1 so there might be a couple more cents in this one.

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

-Takeover action, December 13-17, 2010
Date	Target	ASX	Bidder	(%)	Notes
16/12/10	Apollo Gas	AZO	Dart Energy	98.12	Offer closes Dec 17.
23/11/10	Argent Minerals	ARD	US Nickel	27.40
11/11/10	Brockman Resources	BRM	Wah Nam International Holdings	21.11
15/12/10	Citadel Resources	CGG	Equinox Minerals	56.21	Recommended takeover announced
16/12/10	Clever Communications Australia	CVA	BigAir Group	42.12
12/11/10	Copper Strike	CSE	Kagara	17.22	Rejected.
06/12/10	Essa Australia	ESS	FLSmidth & Co	0.00
11/11/10	FerrAus	FRS	Wah Nam International Holdings	19.90
16/12/10	Impress Energy	ITC	Beach Energy	59.00
13/12/10	Indigo Properties Australia	IPA	DK Northern Investments	15.28
16/12/10	Laguna Resources	LRC	Kingsgate Consolidated	59.55	Recommended off-market offer announced
22/10/10	Northern Energy	NEC	New Hope Energy	4.94	Offer rejected.
16/12/10	Ross Human Directions	RHD	Chandler Macleod Group	45.34
14/12/10	Sphere Minerals	SPH	Xstrata	75.15	Unconditional.
Schemes of Arrangement
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.
20/10/10	Dominion Mining	DOM	Kingsgate Consolidated	0.00	Vote February.
15/11/10	ING Industrial Fund	IIF	Goodman Group consortium	0.00	Due diligence.
14/12/10	Innamincka Petroleum	INP	Drillsearch Energy	0.00	Shareholders block scheme.
13/12/10	MAC Services Group	MSL	Oil States International	19.90	Approved.
15/12/10	Mantra Resources	MRU	ARMZ Uranium Holding Co	0.00	Vote April.
06/07/10	Sylvastate	SYL	Whitefield	0.00	Common CEO.
Foreshadowed Offers
10/12/10	Bravura Solutions	BVA	Unnamed parties	0.00	Indicative scheme approaches.
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.
06/12/10	Riversdale Mining	RIV	Rio Tinto	0.00	Discussions.
07/12/10	Tassal Group	TGR	Pacific Equity Partners	0.00	Rejects expression of interest.

Source: News Bites