supposed takeover price is 4 dollars, page-2

re: 42 percent return for lbo firm Analysts seem to think

CSR Unaware of Any Takeover Bid After Shares Jump (Update3)

By Miriam Steffens

Jan. 17 (Bloomberg) -- CSR Ltd., Australia's biggest sugar refiner, said it is ``unaware'' of any imminent takeover bid after speculation of a A$3.76 billion ($2.9 billion) buyout offer sent the company's stock soaring.

CSR made the statement in response to a Dow Jones report that a buyout firm would offer A$4.30 a share today, or 17 percent more than yesterday's closing price. The company's shares pared gains to be trading at A$3.85 after earlier reaching A$4.02.

Buyout firms could break up CSR, whose businesses include Australia's biggest home-building materials maker and a stake in the nation's second-largest aluminum smelter. Managing Director Alec Brennan in November said CSR was considering selling or separating its units because there's ``no logic'' in keeping the group together.

``CSR is potentially a breakup target,'' said Rob Patterson, who manages the equivalent of $2.5 billion at Argo Investments Ltd. in Adelaide, including 3.1 million CSR shares. ``There are parts of the business such as building materials, aluminum that would be readily saleable.''

A private-equity firm could reap a return of about 42 percent, or twice as much as usually targeted by buyout firms, by adding debt to CSR and selling its units within one-to-two years, according to analysts at Deutsche Bank AG in Sydney.

CSR, which was founded as the Colonial Sugar Refining Co. in 1885, may also have become a target for buyout firms after its shares fell 1.3 percent in the 12 months before today, lagging behind a 17 percent gain by the benchmark S&P/ASX 200 Index.

Sugar Slump

Net income fell 4.7 percent to A$109.2 million in the six months ended Sept. 30 as sugar prices declined, wet weather disrupted sugar milling and a housing slowdown in Australia reduced demand for building materials. Brennan has forecast full- year earnings before interest and tax will be ``marginally behind'' last year's A$416.8 million.

Sugar prices fell to a 13-month low in London yesterday. The Thai Sugar Millers Corp. said production from the world's fourth- biggest exporter of the sweetener may reach a three-year high, adding to a global oversupply. Sugar accounted for more than a third of CSR's first-half earnings.

Traders betting on the creditworthiness of companies in the credit-default swap market also speculated CSR may be the target of a leveraged buyout.

The perceived risk of owning CSR's bonds more than doubled today. Credit-default swaps on $10 million of CSR bonds rose to a high of $80,000 from $36,000, according to data compiled by Bloomberg, before easing to $70,000.

Credit Defaults

Credit-default swaps have become one of best barometers of shifts in credit quality in the financial markets. An increase in the cost of the contracts indicates a deterioration in credit quality; a decrease suggests improvement.

Leveraged buyouts are bad for bondholders because private- equity firms typically use the company they are acquiring to borrow the money needed to finance the deal.

CSR debt is rated BBB+ by Standard & Poor's, the third- lowest investment grade rating, and an equivalent Baa1 by Moody's Investors Service.

CSR kept the Australian building materials, sugar refining and aluminum smelter after spinning off Rinker Group Ltd. in 2003. Shares of Rinker, which gets more than 80 percent of earnings in the U.S., have quadrupled since the spin off, and the company is now fighting a hostile $11.7 billion bid from Mexico's Cemex SA.

Buyout firms such as New York-based Kohlberg Kravis Roberts & Co. and David Bonderman's Texas Pacific Group are flocking to Australia, which scrapped a 30 percent capital gains tax last year for overseas investors.

Buyout offers rose to a record $33.4 billion in Australia last year from $1.9 billion in 2005, according to Bloomberg data. Texas Pacific is part of a group that has agreed to buy Qantas Airways Ltd., Australia's largest carrier, for A$11.1 billion in the nation's biggest buyout