Insider, Jamie Freed's new column, looks at what's happening in boardrooms, back rooms and the world of markets. Click back here for the latest updates.
After more than two months of takeover talks, Nufarm this morning signed a heads of agreement on a $3 billion deal with China's Sinochem.
Sinochem will pay $13 a share for Nufarm, which does not include the 15 cents a share final dividend being paid by the agricultural chemicals company.
There had been predictions from analysts that Nufarm, advised by UBS, and Sinochem, advised by RBS, could strike a deal at up to $14 a share, although a spate of earnings downgrades by Nufarm is unlikely to have assisted its bargaining position.
That compares with the price of $11.25 a share at which Nufarm raised $300 million in May. Its managing director, Doug Rathbone, sold $19.7 million of his holding at that time but has retained 11 per cent of the company. Nufarm had closed at $11.14 on Friday.
Nufarm's latest guidance was for a profit of $135 million to $145 million excluding significant items, but that came with the caveat that it was subject for review. Nufarm this morning reported a better-than-expected profit of $159.7 million excluding significant items. The company said it was confident it could report much improved results next year, which likely helped it achieve the relatively high price from Sinochem.
A bid from Sinochem will require Foreign Investment Review Board approval.
INTROSPECTIVE MACQUARIE
Global Airports’ efforts to extract more disclosure from Macquarie Airports through legal means is unlikely to have hastened proposed internalisation plans for Macquarie Group’s other listed satellite funds.
Macquarie Media (MMG) recently confirmed it is talking to Macquarie about internalising its management, but a notice of meeting released on Friday makes clear that any vote on such a proposal will not be considered by shareholders at its annual meeting on October 28.
MMG has a market value of $338 million, which is only $7 million above its $331 million in cash at the parent level. It last year paid Macquarie – a 26 per cent shareholder – $1.3 million in base fees and no performance fees after reporting an $84.6 million loss.
Macquarie Equities analyst Alex Pollak values the management rights at $25.2 million.
Its businesses – Macquarie Southern Cross Media in Australia and American Consolidated Media in the US – are loaded with debt and were both hit by slumps in advertising last year.
At one point, there were questions over whether the assets were worth any more than the debt, but the improvement in the economy in Australia and the US means there is probably some equity value now.
Still, the businesses are over-geared and some observers think it is possible that even the large cash balance at the parent level will not be enough to prevent it from needing a raising alongside a refinancing.
MMG last month said it would not pump equity into ACM, which has $162 million of debt due next June, meaning it could be at risk of losing some or all of that asset. However, it is willing to pump funds in to help refinance $860 million of MSCM debt due next November.
It would be odd for a company to buy back its shares shortly ahead of a possible equity raising, but it would not be the first company to do so.
In that context, it is worth noting that MMG is asking shareholders to allow it not to count the issue of 18,978 shares granted to ACM’s management toward its 15 per cent placement capacity to allow it do ‘‘take advantage of commercial opportunities that may arise’’.
FEVERISH FORTESCUE ABUZZ
These days, there is no shortage of activity at Fortescue Metals.
The company, which on Friday evening announced its chief financial officer, Michael Minorosa, would leave after just seven months, should provide an update on its $US6 billion financing package with Chinese lenders by Wednesday.
If a deal is not struck by that date, Fortescue’s agreement to sell its iron ore at a 3 per cent discount to its rivals is set to expire. Based on its past history of discounting, however, the likelihood of Fortescue recouping any of the 3 per cent discount would appear rather slim.
Meanwhile, Fortescue’s long-running quest to access the BHP Billiton and Rio Tinto railway lines in the Pilbara heats up today with the start of hearings before the Australian Competition Tribunal in Melbourne. The case is set to last about 13 weeks.
A win for Fortescue would force its rivals into talks about allowing the upstart access to run its own trains down their railway lines in return for a commercial rate.
However, it would not prove surprising if BHP and Rio studied their own railway capacity and found there was no spare capacity available for Fortescue and other third parties.
The lack of capacity could be heightened by the looming Pilbara joint venture between the pair, which is meant to allow them to optimise their use of the combined infrastructure.
SHOPPING BAG
The Myer prospectus, to be released online with much fanfare this morning, will provide only a broad indication of what the register may look like after its $3 billion float. As noted last week, TPG, which with Blum Capital owns 84.2 per cent of Myer, is not expected to make a final decision on whether it will retain shares in the department store until an institutional bookbuild in November.
So the prospectus will release a range of possible outcomes for the number of shares available to investors, pending a final decision by the private equity group.
Another ongoing uncertainty will be the total amount of debt. Holders of Myer's hybrid notes, which are trading at 5 per cent above their face value, can convert them to shares at a 2.5 per cent discount to the float price or hang onto them until 2013, when they will be redeemed at face value.
Bell Potter analysts have noted Myer's net debt-to-equity ratio is at 183 per cent ahead of the float.
Myer has $879 million of debt, including the hybrids, $185 million in cash and just $380 million in equity.
Myer is expected to use the proceeds from the float to lower its debt to $450 million or so, and the amount of equity will increase substantially.
WHAT'S MY LINE?
There appears to be a consensus in the market that Telstra is highly unlikely to compete against NBN Co Ltd, the company established to deliver the national broadband network, and is instead more likely to transfer fixed-line customers to the network over time as part of a structural separation.
That way, Telstra can likely keep its 50 per cent stake in Foxtel, which allows it to be a one-stop shop for customers seeking fixed-line, mobile, broadband and cable services.
If it sold the Foxtel stake to News Corp and Consolidated Media, Foxtel could bundle services itself and sell it to customers once the national network is operational. If it cuts a deal with a mobile provider, it would be able to offer exactly the same bundle of services as telcos such as Telstra.
Foxtel already reaches 30 per cent of Australians and could be a formidable competitor against Telstra and Optus. But while a structural separation appears to make more sense than a functional separation that caused the loss of Foxtel, the key will be compensation.
Telstra is said to have a team of about 20 bankers from Macquarie Capital working out the best structure for a separation. They are sure to be focusing on strategies to extract the maximum value from the Government in return for switching customers and likely the duct network to NBN over time.
NBN has hired KPMG and McKinsey to investigate ways in which the fibre-to-the-home network will be financed, built and operated.
Those consultancies are more known for their exhaustive analysis than for their negotiating skills. Therefore, it is not surprising to hear suggestions that a few investment banks are likely to knock on NBN's door, arguing it needs their firepower against Telstra and Macquarie when it comes time to hammer out a compensation deal.
Analysts at Macquarie Equities have estimated Telstra could extract $9 billion to $18 billion for its fixed network assets. Goldman Sachs JBWere suggests closer to $8 billion.
FLIGHT AND FIGHT
In an interesting coincidence, two associates of Global Airports will face off against Macquarie Airports in the NSW Supreme Court today at 2pm - the exact deadline for proxies to be filed ahead of a planned shareholder meeting on Wednesday that would see MAp's management internalised in return for a $345 million payment to Macquarie Capital.
GAP's only realistic chance of preventing approval of the deal would appear to be a legal ruling in its favour. An injunction could postpone the meeting pending additional disclosure of change of control clauses and lead to a new round of voting.
GAP maintains it is very serious about its proposal. However, the slim likelihood of success has some observers wondering if the objective is to fire a warning shot to Macquarie about the terms of management internalisation deals it hopes to strike with the independent directors of other listed satellites, such as Macquarie Infrastructure Group.
For its part, Macquarie does not appear to have been shaken by GAP's tactics and has noted the performance of the Hastings Australian Infrastructure Fund, previously run by GAP leader Mike Fitzpatrick, is nowhere near as good as MAp under Macquarie's management.
