Whitehaven fires up

The consortium bid for Whitehaven Coal needs plenty of cash, and whether that comes through remains to be seen.

PORTFOLIO POINT: Nathan Tinkler is banking on pulling the funding together to complete his takeover bid for Whitehaven, but that’s not guaranteed at this stage.

Whitehaven Coal (WHC). Nathan Tinkler has put together a consortium to attempt to buy Whitehaven, but there’s still a substantial risk he might not be able to get the funding for it at the moment.

The market obviously wasn’t expecting the $5.20 bid, announced Friday night, as Whitehaven’s share price fell to three-year lows and closed the week at $3.45. Back when the process first started, people were saying a bid would have to be $5.50 or $6 to be successful but I think the slide in the share price (it had fallen 20% in the month leading up to the bid) suggests $5.20 would probably be enough.

The shares closed at $4.07, and the share price is not going to race up because this isn’t really a bid yet – it’s conditional on both due diligence and financing.

Tinkler has put together a group that already owns almost half the stock – 48.3% – and they are apparently talking to holders of another 16.7%, which means they don’t have to borrow nearly as much cash. However, even with the added shareholders it would still require about $1.8 billion of debt funding – and roughly $2.7 billion with the current consortium. There’s a chance the banks will look at that and say 'we don’t want to lend that much money’. If Tinkler has half the shareholders on side they must know the business – so the due diligence is really for their bankers.

Irrespective of where the share price trades, I still wouldn’t be buying into this just yet because there’s a substantial risk Tinkler won’t be able to put the funding together. However, this is definitely one to watch.

Clearview (CVW), Plan B (PLB). There were two takeover bids in the wealth management and financial planning sector this week. First, a bid from IOOF (IFL) for Plan B, at 60c a share, which has board recommendation, and second a private equity bid from a group called Crescent Capital at 50c a share for Clearview.

Clearview is trading at a premium. It closed today at 53.5c, and at 54c that’s 8% above the bid. In normal circumstances I would not recommend paying that much, but I’ll break my own rule in this case because Clearview’s major shareholder Guinness Peat (GPG) has flatly rejected 50c as inadequate. So, assuming Crescent really wants this deal to happen – and I think they do – they have no choice but to meet Guinness Peat’s demand. If they get an increase it will be more like 10c, and I think there’s a better than 50-50 chance of this, so paying 3-4c over the bid is probably reasonable value.

I am a bit surprised Crescent didn’t talk to Guinness beforehand. I thought they would have worked out a price. Guinness has a policy of gradually realising its assets, so it will do a deal if it can – just not at this price.

Plan B is simpler, as the board has recommended the IOOF bid. It closed today at 59c, which is about right since it will take a few months to wrap up.

What we’re seeing here, however, is a consolidation in wealth management. There are other stocks investors should be looking at in the space, and the big buyers here are the banks which are struggling to grow their businesses and can’t buy each other. There are, of course, a lot of unlisted groups that will get snapped up, but in the listed market IOOF, while currently a buyer, is also definitely still an attractive target. Other targets include Perpetual (PPT), which knocked back a $40 a share bid and is now at $23.20, and Shadforth Financial Group (SFW).

Alesco (ALS). Dulux (DLX) has extended its bid by a fortnight to August 4, and, as I wrote last week, I still think there’s a good chance of an increased bid.

Dulux started this bid with 20% under its belt and it now has 30%, so people are starting to accept it. Much of this is through something called an Acceptance Facility, which is designed to allow institutional shareholders to accept, but retain some flexibility to withdraw acceptance until the bid is declared unconditional. It’s sort of like a half-way bet.

What Dulux is doing here is playing a game of chicken. It’s increasing institutional acceptances and if it gets to 50% it will declare the bid unconditional and the board will probably have to recommend it to everyone else. So for Dulux, it’s absolutely crucial to inch toward 40-45% in the next two weeks.

If it gets to 40%, some sort of increase may be likely just to get it done quickly. Dulux’s lenders have also reduced their requirement from 90% acceptances to 50.1% for funding, which tells you there’s probably a bit of room to move on price as acceptances increase.

Hastings Diversified Utilities Fund (HDF). The Pipelines Partners bid of $2.325 a share in cash (see here LINK) has been recommended by the Hastings board, but this is still interesting. The other bidder, APA, has a lot of regulatory hurdles to jump and the feeling is that it launched its mostly-scrip bid of roughly $2.13 to test if it could get those clearances.

This is a good situation, because you’ve got a cash bid which is pretty firm and acceptable, and the possibility of a higher bid from APA if it gets regulatory approval. Whether this will happen is hard for me to say, but if it does I think it will bid up. It will depend on the deal, and in a volatile market an all-cash bid has an advantage, but there’s a cash bid and for not much premium a strong possibility APA will come back higher.

HDF closed up 0.5% at $2.34 today.

Norton Gold Fields (NGF). A bit like Sundance (SDL), this is one of the resources bids from a Chinese firm that has been bubbling away in the background. The bid is 27c a share, and Norton closed today at 25.2c, and the bidder Zijin Mining has just received Foreign Investment Review Board approval.

Similar to Sundance, however, it has not yet received the all-important approval from authorities in China, and there’s just not enough upside in the 1-2c to risk the finance and foreign regulatory approval.

Thakral Holdings (THG). Finally, I wrote a while ago that Thakral was probably a good buy, and as the share price has drifted down to near the bid price from Brookfield it’s worth mentioning again.

Brookfield has bid 70c a share, and an independent expert has value Thakral at 88-96c. Thakral has been trading in the mid-70s for a while, and closed today at 73c – which is over the bid but not excessively so.

I don’t think Brookfield will go to 88c, but at 80c they will probably get a board recommendation and that’s a 2-3c downside with a 7-8c upside, possibly more. I think a deal will be done here, and at the current price it’s not a bad punt.

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

-Takeover Action July 9-July 13, 2012
DateTarget
Code
Bidder
(%)
Notes
09/07/2012Alesco
ALS
Dulux Group
22.10
29/06/2012Austock Group
ACK
Mariner Group
0.00
10/07/2012Castlemaine GoldfieldsCGTLion Selection23.33
22/06/2012Genesis Resources
GES
Clancy Exploration
8.01
Ext to Jul 30
15/05/2012Hastings Diversified
HDF
APA Group
20.71
Closing Jul 15
24/05/2012Minemakers
MAK
UCL Resources
0.00
13/07/2012Norton Gold Fields
NGF
Zijin Mining Group
16.98
11/07/2012Orion MetalsORMConglin Investment Group57.43
29/06/2012Real Estate Capital Partners USA Property Trust
RCU
Woolley GAL II
32.81
Incl associate's holding
12/07/2012Rocklands Richfield
RCI
Shandong Energy
51.10
Pre-bid agreement
04/06/2012Thakral Holdings
THG
Brookfield Asset Management
38.58
Schemes of Arrangement
15/06/2012Spotless Group
SPT
Pacific Equity Partners
19.64
Vote Jul 25
22/06/2012Sundance Resources
SDL
Hanlong Mining Investment
17.99
To complete Nov 2012
Foreshadowed Offers
21/05/2012PMPPMPTMA Group0.00Non-binding indicative offer
13/07/2012Whitehaven Coal
WHC
Tinkler Group
48.30
48.3% in shares expressed

Source: News Bites

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