xstrata, page-4

BREAKFAST DEALS: Xstrata watch

Supratim Adhikari

Published 7:42 AM, 21 Jul 2011 Last update 7:42 AM, 21 Jul 2011


Macarthur Coal?s US suitor Peabody may be in the box seat for now but this deal may not be a one-horse race, with Swiss-miner Xstrata seen as a likely counter-bidder. And that?s not the only takeover battle Xstrata may be keen on joining, with talk that it may also be having a look at Sundance Resources. Meanwhile, BHP?s latest shale gas deal angers one Petrohawk shareholder as Deutsche Bank analysts highlight the mining giant?s next target in the sector. In other news, rural property investor, PrimeAg?s plans to set up a new unlisted agri-fund with the help of the Future Fund are thrown into disarray, MAp decides to return cash to its shareholders and Linc Energy backs out of its recent US acquisition.

Macarthur Coal, Peabody Energy, Xstrata

Macarthur Coal?s US suitor Peabody Energy is certainly confident of snaring its target and it?s a point that the company?s president Rick Navarre has been quick to drive home to the market. Some of this confidence is not misplaced, given that Peabody has teamed up with a major Macarthur shareholder in Arcelor Mittal and can count on the Indian steelmaker?s 16 per cent stake in the target. That makes the finishing mark of 50 per cent acceptances an achievable one for Peabody, provided everything goes well during the due diligence process. However, it might be a bit too early to discount the possibility of counter-bidders coming out of the woodwork. That view was further emboldened yesterday after another major Macarthur shareholder, Citic Group ? one that may have a significant bearing on the end result ? told Reuters that it was weighing up all of its options before responding to the situation. Presumably one of those options could be a counterbid, possibly in tandem with a cashed-up party. Just who this might be is anybody?s guess but the likes of Rio Tinto, Xstrata and commodities firm Noble Group could all fit the bill. According to The Australian, the most likely contender for the moment is Xstrata, which had a look last year, and would have a good idea of what?s on offer here. Rio Tinto is reportedly not keen just yet, while Chinese and Indian parties could also enter the fray. We should get a clearer picture of the playing field by the end of next week once Peabody and Arcelor complete their due diligence.

Sundance Resources, Hanlong Mining, Xstrata

Meanwhile, the takeover tussle for iron ore target Sundance Resources looks set to get interesting, with the company?s major shareholder and suitor Hanlong Mining reportedly facing some competition. Hanlong has pitched a $1.4 billion bid to get its hands on the attractive, but potentially politically tricky Mbalam project in West Africa, however the Australian Financial Review reports that a heavyweight miner is also in Sundance?s data room. The name bandied around is again Xstrata, so the Swiss miner certainly seems active, while Anglo American has also been mentioned as a potential candidate. The rival suitor has already had a look at the project and this is exactly the sort of speculation that Sundance has been hoping for as it looks to extract a better deal from Hanlong. Meanwhile, the AFR also reports that Hanlong has added Deutsche Bank to its list of advisers.

BHP Billiton

While BHP Billiton?s $14 billion plunge into the shale sector seems to be sinking in with investors, the mining giant certainly pleased the market with better-than-expected quarterly production figures. Despite concerns in some sections that a move into shale brings with it significant regulatory risk and liability issues, thanks to the contentious nature of the hydraulic fracturing (fracking) technique, BHP has said that it is keen on more acquisitions and Deutsche Bank analysts have highlighted Southwestern Energy, which carries a price tag of around $US17 billion, as the next target. Of course BHP first needs to close the deal with Petrohawk Energy, which has predictably been drawn into a legal fracas. According to Bloomberg, one of Petrohawk?s shareholders, Astor BK Realty Trust, has alleged that the deal creates a conflict of interest on the part of Petrohawk?s directors and undervalues the company.

PrimeAg, Future Fund, AFF

Rural property investor PrimeAg?s plans to establish an unlisted agricultural fund (Agri Fund) have been thrown into disarray with some recalcitrant shareholders taking exception to Prime Ag?s plans to raise $125 million through a discounted share issue to pour into the new fund. PrimeAg said that an institutional investor which had requested to remain anonymous ? but was widely assumed to be the Future Fund ? had committed at least $125 million and up to $200 million to the fund. PrimeAg wants to raise its $125 million via a non-renounceable entitlement offer, giving 10 new shares for every 13 held, at $1.08 each. On top of that PrimeAg?s CEO John Stewart has decided to move on and will be replaced by current executive chairman Peter Cornish, with deputy chairman and former Woolworths boss Roger Corbett to become the non-executive chairman of the board. However, Australia Food and Fibre, which holds an 11 per cent stake in PrimeAg, has made it clear that it wants Cornish, Corbett and the rest of the directors out and that it?s not in favour of any capital raising or a new fund. AFF?s view has reportedly been backed up by another shareholder Select Asset Management and a struggle for the board will surely wreck any chance of setting up the fund and, as the AFR points out, missing out on a chance to bid for Australia?s largest cotton farm, Cubbie Station. PrimeAg shares, which were placed in a trading halt on Wednesday, last traded at $1.28.

MAp, OTTP, Sydney Airports

Macquarie Airports has officially signed a binding asset swap agreement with the Ontario Teachers Pension Plan Board, which will see MAp take OTTP?s 11.2 per cent stake in the Sydney Airport and earn $791 million by selling its interests in Brussels Airport and Copenhagen Airports to OTTP. The swap takes MAp?s stake in the Sydney Airport to 85 per cent and the company has quickly hosed down talk of any immediate moves to pick up the remaining 15 per cent, choosing instead to return money to its shareholders. MAp has announced it would return around 80 cents per stapled security to shareholders.

Wrapping up

There are still no signs of any life in the Foster?s Group-SABMiller takeover tussle and that might not change until the target presents its full-year results in August. However, there are many who are starting to lose heart and have doubts whether the race for the brewer will ever come to light. Without that competitive tension, SABMiller is unlikely to raise its bid to where the target would like it to be. Linc Energy's ambitions have taken a few steps back, with the proposed $236 million purchase of 14 oil fields from ERG Resources now off the table. Linc said that its unit, Linc Gulf Coast Petroleum, has terminated the previously announced agreement, citing alleged title defects identified during due diligence enquiries and closing preparation. The fields have net proven reserves of 20.5 million barrels of oil, and probable reserves of 22.3 million barrels of oil. In property news, Mirvac Group is reportedly in talks to sell four of its industrial properties, with The Australian reporting that the property group is in exclusive negotiations with Aviva Asia on a $170 million deal. The paper adds that both parties are also mulling the potential formation of a strategic alliance. In other news, rail and ports group Asciano?s port unit, Patrick, has signed a new five-year contract with Maersk Line, with the Danish shipping giant set to deliver an additional 190,000 containers to Asciano?s terminals. Asciano has ordered a total of five new cranes for its container terminals, in Fremantle, Melbourne and Brisbane, to be delivered over the next 18 months. The contract comes amid speculation that Asciano?s boss John Mullen may want to divest the port unit. Finally, Downer EDI has won a contract to supply 15 passenger rail cars for Western Australia?s Public Transport Authority through a 50/50 joint venture with Bombardier Transportation Australia. The contract is valued at more than $160 million, with Downer snaring more than $80 million. The trains will be manufactured at Downer?s facility in Maryborough, Queensland and delivered progressively from September 2013.