It often pays to read the fine print. But with the reams of documentation surrounding Babcock & Brown Infrastructure's complex $1.8 billion recapitalisation deal, it is perhaps not surprising that some of the more interesting details have been lost amid the clutter.
The jewel in the crown of the BBI portfolio is its full ownership of Dalrymple Bay coal port, Queensland, which has an enterprise value of about $2.25 billion.
It has been well-publicised that BBI will sell a 49.9 per cent stake in that asset to its new cornerstone investor, Canada's Brookfield Asset Management, for $295 million as part of the recapitalisation deal.
But the fine print shows that starting on the fifth anniversary of the deal, Brookfield will have an annual right to demand the sale of Dalrymple Bay at a price specified by Brookfield.
BBI will have a period in which to decide whether to buy out Brookfield's interest at the same price. If BBI chooses not to acquire the 49.9 per cent stake, Brookfield will be allowed to sell the entire port to a third party at no less than the price it had specified.
BBI will be able to buy out Brookfield's stake by issuing shares to the Canadian company at 95 per cent of their trading price at the time. That would serve to greatly increase Brookfield's direct stake in BBI from the 35 per cent to 40 per cent expected after the recapitalisation deal is done.
Those close to the deal argue that the arrangement will ensure BBI recoups full value for Dalrymple Bay in the future. But others pondering an investment in the recapitalised company based on its growth prospects may not be thrilled with the idea that BBI's continuing ownership of its flagship asset could be in part dependent on Brookfield.
That would be especially true if BBI could not grant Brookfield a second ranking security over Dalrymple Bay's equity and debt by February 2013. In that case, Brookfield can demand that BBI sell its 50.1 per cent interest in Dalrymple Bay at a price specified by the cornerstone investor and would not have an option to buy Brookfield's 49.9 per cent stake.
The independent expert Grant Samuel considered the Dalrymple arrangements ''on balance disadvantageous'' to BBI, but overall they were deemed ''no less advantageous'' than those that would apply in a sale to an arm's length third party.
WATCHDOG WADES IN
The competition regulator has launched an informal inquiry into GrainCorp’s proposed $757 million purchase of United Malt Holdings from private equity.
Among the issues under consideration are whether the deal would allow GrainCorp to decrease the price received by farmers for malting barley and how the transaction might affect rival acquirers of malting barley.
It would be a surprise if the Australian Competition and Consumer Commission rejected the deal or attempted to place significant restrictions on the agreement given that rival ABB Grain (now owned by Canada’s Viterra) owns the other major malting business in Australia, Joe White Maltings. Globally, many of the top malting companies are owned by grain handlers.
D-DAY LOOMS FOR XSTRATA
Diversified miner Xstrata has just one week to decide whether to formalise a bid for Anglo American or walk away for at least six months.
The London market is so far betting that Xstrata will either formalise its merger of equals – even though it is viewed as dead in the water without a premium – or walk away. Few are punting on an immediate increase.
If Xstrata chose to formalise its offer, the long list of regulatory hurdles to a transaction would give the Anglo-Swiss miner more time to decide whether to sweeten the offer with more scrip and/or cash.
Xstrata last night revealed it would raise $US465 million by selling its 70 per cent stake in the El Morro copper-gold project in Chile to Barrick Gold.
Xstrata may also be able to raise another $US2.25 billion if its major shareholder, Glencore, decides to exercise a right to buy back the Prodeco coal assets in Colombia.
Glencore had sold Xstrata the asset for $US2 billion on a provisional basis to enable it to participate in Xstrata’s $US5.9 billion rights issue earlier this year. Glencore has until next January to exercise its right to get it back.
OIL FIND FUELS WOODSIDE HOPES
The recent discovery of oil off Sierra Leone, in a permit in which Woodside Petroleum holds 25 per cent, was no doubt good news for the Australian oil producer.
At the time, Woodside’s partners, Anadarko Petroleum and Tullow Oil, said the discovery could confirm the existence of a 1000 kilometre basin off West Africa from Sierra Leone to Ghana.
Unlike Woodside, Anadarko and Tullow also hold stakes in the 1.8-billion-barrel or so Jubilee field off Ghana.
ExxonMobil last week made a $US4 billion bid for US-based Kosmos Energy’s 30 per cent stake in that field, and now China’s CNOOC is reportedly considering a rival offer.
These bids would appear to demonstrate that if the acreage off Sierra Leone in which Woodside is involved proves to have similar potential, it could be much more valuable to the Australian oil producer than the market is currently factoring in.
Anadarko last month said its Venus discovery part-owned by Woodside was the same type of resevoir as the Jubilee field.
BHP'S BIG BID
BHP Billiton is understood to be the mystery miner negotiating with United Minerals about a possible change-of-control transaction that would trump a recently planned placement to China Railway Materials. BHP, believed to be advised by Gresham, was the original owner of United's Railway project, but back in 2003 it was required to drop 264 square kilometres off its tenements. United eventually picked up the area, making it the first junior since 1964 to hold the ground.
United recently noted its leases were in the ''geographical centre'' of the production plans of the proposed BHP-Rio Tinto iron ore joint venture, making it valuable real estate. A deal would not mark the first time BHP has paid big money to buy back its old ground.
Last year it bought the New Saraji coal project in Queensland from New Hope for $US2.4 billion in partnership with Mitsubishi, after having relinquished the tenements in 2002.
FAIRFAX TRUCE
As Fairfax Media's directors head into their board meeting in Wellington today following last month's damaging rift, all expectations are they will appoint the deputy chairman Roger Corbett as new chairman-elect to replace Ron Walker, who chairs the meeting for a final time.
The uneasy truce has been achieved after a fortnight of rallying major shareholders, and two private meetings of Corbett with John B. Fairfax and his son Nick of Marinya Media, late last week.
Details of those meetings have not been disclosed but some large shareholders said yesterday their money was on the Fairfaxes supporting Corbett's appointment to signal board unity, letting the company focus again on the structural issues facing the industry and preparing a search for directors with new-media experience.
One key investor said it was vital that a board led by Corbett rallied behind the management team under Brian McCarthy to make sure there were no disruptions.
Elsewhere, Macquarie Media shares rallied 19 per cent as speculation intensified that it was about to make public a plan to internalise the fund's management.
BREVILLE CHECK
The competition regulator has begun an informal review into GUD Holding's proposed $300 million acquisition of rival Breville Group.
The Australian Consumer and Competition Commission wrote to interested parties on Friday - the same day the deal was made public - and noted it had considered separate product markets for each category of small electrical appliance.
As part of the review, the ACCC wants to find out whether GUD and Breville are considered each other's closest competitors and if house-branded appliances could be viable competitors. GUD said last week that the combined group would hold about 30 per cent of the market - and noted the competition from imports - although Goldman Sachs JBWere estimated the market share would be more than 50 per cent.
Meanwhile, Solomon Lew and his Premier Investments, which combined own 30.5 per cent of Breville, are expected to take a close look at the bidder's statement before pondering their next move.
