macquarie bid for afg

Article in SMH...

Allco in talks on buyout
February 12, 2008

Macquarie Group is in talks with Allco Finance to buy out the troubled billion dollar infrastructure and investment group whose shares have been battered by the fallout from its exposure to debt markets.

Allco, led by the chairman David Coe, put its shares in a trading halt as the market opened yesterday, sparking rumours over its future ahead of its results later this week. It emerged later in the day that Macquarie had approached Allco about a possible buyout in a move to take advantage of a 75 per cent slump in its shares over the last year.

Since its castratrophic fall last month to $1.70, the company has staged a minor recovery, closing at $3.05 last week.

Allco and Macquarie declined to comment on the rumours. "The company doesn't want to add anything to the announcement," said an Allco spokesman, Ian Brown.

Macquarie said it did not comment on market speculation.

Allco also put the hybrid securities (AHUGA) in a trading halt, fuelling speculation the pending announcement would relate to a David Coe- and Allco senior management-owned investment vehicle, Allco Principals Trust, which had its stake in Allco Finance and Allco HIT subjected to margin calls last month.

There was also speculation during the day of a management buyout, later discounted given the volatility in the company's share price, which has also affected the executive team's own shareholdings via margin calls on the value of their stakes.

It has been rumoured that Allco management is keen to ensure the company's share price does not fall further, after Allco Principals Trust won a reprieve from its two remaining margin lenders.

The speculation has been fuelled by the recent re-emergence of the Allco founder John Kinghorn, who raided the company's share register for a 6.8 per cent stake at a bargain price last month. A management buyout proposal, one observer said, could a help put a floor under Allco Finance's share price and keep the margin lenders at bay.

"They need some circuit-breaker to stop the stock from going into freefall," he said.

Mr Kinghorn left Allco a decade ago to build up his RAMS home loan business. Some market watchers believe the $650 million Mr Kinghorn earned from the float of RAMS last July could help fund the buyout of Allco. His remaining 20 per cent stake in RAMS has lost about 88 per cent of its value since the company's listing on the stock exchange.

Some market watchers were circumspect on the talk of a buyout. "Given the issues the company has got, if they can fund $1 billion to purchase the firm I'd be very surprised," one said.

There are fears a planned announcement by the firm when the trading halt is lifted could contain nasty surprises before its half-year results briefing on Friday.

These fears were reflected in the trading of other Allco-related stocks, such as Rubicon American Trust which slumped 8.5c to 27c, Rubicon European Trust, which fell 5c to 27.5c, and Allco HIT, which fell 1c to 56c.