australian article today

Transpacific lines up $800m equity lifesaver
Bryan Frith | July 09, 2009

Article from: The Australian
TRANSPACIFIC Industries has missed another self-imposed deadline, but at least the company now appears to be poised to pull off its lifesaving $800 million equity raising.

Early last month Transpacific finally announced some details of a long-awaited recapitalisation and said it expected to launch the offering within two to four weeks "once all the remaining conditions precedent are satisfied or waived".

Four weeks came and went and still no launch. Transpacific now expects the offer to be launched "within the next fortnight", once, of course, all of the remaining conditions precedent are satisfied or waived.

Long-suffering shareholders will be well aware that it's now more than five months since Transpacific shares were last traded on the ASX. The last sale price was $1.80 a share.

The company obtained a trading halt on February 16 on the grounds that it was reviewing its capital structure and was in discussions with potential cornerstone investors.

On February 19 Transpacific obtained a suspension of trading on the grounds that, while negotiations with both potential equity investors and its bankers were confidential, that hadn't stopped speculation or the possible leaking of confidential information and the directors were concerned to ensure the shares didn't trade on an uninformed basis.

On February 27 Transpacific released its half-year results, which disclosed the company had breached the net debt to EBITDA covenant ratio on its US private placement debt and that had triggered cross-defaults on its senior syndicated facility, which meant that all of it had become current liabilities.

The company's auditor, Bentley, qualified the half-year accounts, noting the "current existence of a material uncertainty as to whether the consolidated entity will continue as a going concern".

As a result, the ASX decided the suspension should continue under listing rule 12.2, which stipulates that an entity's financial condition (including operating results) must, in ASX's opinion, be adequate to warrant the continued quotation of its securities. Transpacific concurred with that decision.

On June 9 Transpacific announced plans to raise at least $800 million -- $65m through a placement to the private equity group Warburg Pincus at $1.80 a share and $735m through a 1.77-for-1 accelerated renounceable entitlement offering at $1.20 a share.

The placement would give Warburg Pincus a 10 per cent stake in Transpacific. The private equity group will take up its share of the entitlement offering and will sub-underwrite a portion of the institutional component of the entitlement offer and all of the retail component.

As a result, Warburg Pincus will emerge with at least 18 per cent of Transpacific, and possibly much more, depending on the take-up of the shareholder issue.

A key condition precedent to the equity raising is the waiving of the covenant breaches by the banks and the US private placement investors, and an extension of the bank facilities.

Transpacific says that discussions have now been finalised and amended documents agreed, which effect a covenant waiver and an extension of the bank facilities into new four and five year tranches, conditional on the equity raising proceeding.

Another key condition precedent is obtaining necessary waivers and modifications from ASX and ASIC. ASX is prepared, on an in-principle basis, to grant the waivers while ASIC's review process is expected to be concluded shortly, but is not expected to present any problems.

Following due diligence for the issue prospectus, Transpacific has updated its earnings forecasts for the year to June and now expects a 25 per cent ($64.4m) fall in operating profit for the second half, from $255m to $191m, and a 9 per cent decline for the full year, to $447m.

Normalised profit after tax is expected to decline by 57 per cent to $61m, before significant items and one-off charges of $210m. Warburg Pincus is prepared to invest up to $496m, or 62 per cent of the $800m raising. On a worst-case scenario the private equity group could end up with around 42 per cent of the expanded Transpacific.

But that's highly unlikely to happen. As the offer is renounceable, entitlements not taken up will be sold via an institutional bookbuild. One of the beneficiaries of that process will be executive chairman Terry Peabody.

Peabody owns 37 per cent of Transpacific and is entitled to subscribe for 203m worth of shares at a cost of $244m. Instead he is putting in $70m for 58.3m worth of new shares, which will dilute his stake to about 17 per cent. The sale of his entitlements will go a long way towards funding the shares he is taking up.

The 63 per cent of Transpacific that is not owned by Peabody, is held roughly 50-50 by institutional and retail investors. Warburg Pincus and Peabody are prepared to commit $566m between them, leaving $230m to be assured of securing the $800m.

It's suggested that would be virtually covered if the top five or six institutional shareholders were prepared to commit to take up their entitlement. If that can be achieved, Deutsche Bank and Macquarie Capital are ready to act as underwriters to the issue.

The amount that Warburg Pincus would ultimately have to subscribe would depend upon the extent to which the other institutional holders and retail holders take up their entitlement, and acquire the shortfall stock via the institutional bookbuilds.

THE party who picked up 10 per cent or so of Consolidated Media in a $175m market raid yesterday is now legally required to disclose its identity within two days, but the smart money is on Kerry Stokes.

Stokes already has extensive media interests, notably a controlling stake in Seven Network and a significant stake in WA Newspapers, and he is flush with funds.

ConsMedia has been selling at around $2.20 a share, but Southern Cross Equities stepped into the market yesterday offering $2.50 a share. The broker picked up a crossing of 60 million shares, or 8.7 per cent of the capital, and is thought to have ended the day with around 70million of the 84 million shares that traded. If so, that would give the buyer just over 10per cent.

If the buyer was Stokes, and if earlier speculation that he has already built a stake of just under five per cent is correct, then he would now be holding close to 15per cent.

The market raid brought in other buyers and the stock closed the day 32c, or 14.5 per cent, higher at $2.53.

But speculation of a pending takeover bid is almost certainly incorrect and likely to be short-lived. For a start, the Packer family's Consolidated Press already controls ConsMedia through a 38 per cent shareholding.

More likely is that the raid was intended to buy a seat at the table in the event of any developments down the track.

The major attraction almost certainly would be ConsMedia's 25 per cent shareholding in the pay-TV operator Foxtel. It also owns 50 per cent of Premier Media, which owns the Fox Sports pay-TV channels, and 26.7per cent of the online employment business Seek.

Speculation that ConsPress may have been either a buyer or seller is almost certainly incorrect. More likely is that institutions were the sellers and ConsPress couldn't have been the buyer because, with its existing stake, that would be a breach of the takeover rules.

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