Will Rinker sink?

The first item on my desk this morning is Rinker. This is a big takeover, with Cemex of Mexico bidding for the company. It represents the biggest cash offer ever on the ASX, but I think a rival offer is definitely a possibility; in fact, it's a probability, because Cemex has only bid $US13 a share, which equates to about $17. It’s unlikely the takeover would succeed at that level.

As recently as April, Rinker shares were trading north of $20. And what's really interesting is that the day the takeover suddenly hit the market (after the close of trade on Friday, October 27), a key rival, Boral, had a profit downgrade. So on the one hand you've got one building materials company saying conditions are tough, and on the other hand you've got Rinker receiving a takeover offer. Put it this way: this first bid will not make it.

Australian-owned Perpetual Investments is Rinker's largest shareholder, with 10% of the stock. I think Perpetual will probably accept something over $20, but I don't know that for sure. I'm just guessing.

Cemex is not the only cement company capable of making a play here. There are at least one or two UK listed companies that could enter the game here. What's more, Rinker has very little debt; in fact it has a lot of cash on its balance sheet. It could go the ”poison pill” route and try and buy something else, although that may not be popular with shareholders.

Rinker. Do not sell into this cash offer of $17 a share.

Coles Myer

Speaking of companies that are not popular with shareholders, the story is not over at Coles Myer where a private consortium led by KKR (Kohlberg, Kravis & Roberts) made a $14.50 a share bid, that was then increased to $15.25 but rejected by the Coles Myer Board.

Now KKR have said they will not increase that price and they will walk away from the takeover and won't be back. I think they probably will be back at some stage. I think they can afford to wait now, because as a form of defence, the Coles Myer Board came out with some very ambitious profit targets for the next couple of years, and then they made the mistake of not adjusting their executive compensation plan to meet those targets. Their largest single shareholder, Solomon Lew's Premier Investments, is on their backs. If the CML board stumbles and doesn't make its profit targets, I think that's when you'll see KKR come back.

If John Fletcher and Coles Myer do not have a good Christmas, then they'll be on shaky ground and more vulnerable to takeover.

CML. The raiders will be back, maybe early next year after Christmas results.

* The Suncorp-Promina bid is not listed; it is a scheme of arrangement. Source: NewsBites

Promina

There's been talk of Suncorp’s bid for Promina being some sort of “poison pill” to repel predators from its own shareholders. I don't know about that '¦ all companies want to expand and chief executives of companies like to figure themselves as running bigger and bigger businesses. So it's quite natural for Suncorp to expand its insurance operations by making a bid for Promina.

So for a big bank to buy Suncorp '¦ well it would be buying a big insurance operation as well, and it's sort of debatable how well that would work. Of course, the last group that did that was CBA buying Colonial and it's debateable how well Colonial has done with its insurance operations.

This will go through Graeme Samuel at the ACCC, who may still have something to say about it. The deal might face some issues over motor vehicle insurance market concentration, but it's nothing that can't be fixed by a few divestments.

Sun. The Promina offer will go through with some minor conditions from the ACCC.

Flight Centre

The Flight Centre takeover is an intruiging bid by the founders to take back the company. If you're a shareholder you'll get $17 plus a 20¢ per share dividend. So $17.20, plus a handful of franking credits worth, say, another 8¢.

Meanwhile, the executives who are effectively helping to bid for the company with another private equity group are only taking $13.80 for their shares, but they will be getting stock in the new privatised Flight Centre. So the conflict I guess with this one is that presumably the executives '” and this includes the founders such as Graham Turner and Geoff Harris '” must think it's worth more than that, yet at the same time they're advising public shareholders to accept $17.20.

Alternatively, you could say Flight Centre is under enormous pressure. I mean, given the way the internet has changed the way people book both flights and their holidays, Flight Centre could be in terminal decline. I think shareholders should grab the $17.20 and run. I think it's a fair price, and I don't think you'd see Flight Centre shares at that level for quite some time, if ever, in the absence of the privatisation plan.

APN and media stocks

Looking ahead this week, we're bound to see more action on the media front. Despite all the positioning from various media groups, APN (along with PBL) has been one of the first to move with a $2.7 billion deal led by Irish press baron Tony O'Reilly that would see him take full control of the Australian company .

The O'Reilly bid is expected at about $6.02. Already people are saying that the board of APN won't sell the company at that price and the stock closed at $6.18 on Friday, so it’s a modest premium to the bid. I think this takeover will go ahead, but it will probably be at a slightly higher price, offsetting a counter bid. You have to remember that when you've already got a 40% shareholder there (O'Reilly), it's highly unlikely that anybody else can come in and snatch it.

Across media the key targets are still Fairfax, Southern Cross, Austereo and, arguably, Channel 10. I think Austereo and Channel 10 are the most likely targets. They're each pure players; that is, Austereo is pretty much just radio, and Channel 10 is just television, and under the new laws you'll be able to have two voices in each capital city.

Southern Cross is a mixed bag; it's got regional television and capital city radio, you know, a bit harder for anybody to buy in its entirety, but it does have a very open share register.

As for Fairfax '” I just don't know. I really don't think James Packer is anything as keen as Kerry might have been and the Fairfax price is dropping already. Murdoch bid $5.20 and now it’s back below $5. I don't think we'll see any action until next year. I watched a lot of big institutions selling stock at the end of last week. The media stocks, especially Fairfax, have run ahead too far. We'll see more selling soon, but I'd hang on to APN for a while yet.

APN. Don't sell yet. O'Reilly could make a higher bid.

Disclaimer: Tom Elliott is managing director of MM&E Capital, a hedge fund that specialises in takeover deals. MM&E may have an interest in any of the stocks mentioned above.