BREAKFAST DEALS: KKR hopes

The float of Myer by TPG Capital killed the Australian IPO market and good, particularly for private equity. While nothing concrete is in yet, Kohlberg Kravis Roberts is reportedly thinking about a BIS Industries float. See what a quick bull market can do? Elsewhere, Sembawang Australia just won’t let Macmahon’s construction business alone, are these guys Shakespearean or more Schwarzenegger? Elsewhere, Virgin Australia’s John Borghetti is getting a little skittish about some Tiger Airways details, British Airways doesn’t look happy with Qantas thanks to Emirates, plus we’ve got news on Whitehaven Coal and the three TV networks.

Kohlberg Kravis Roberts, BIS Industries

Private equity firm Kohlberg Kravis Roberts is reportedly investigating the prospect of a $1 billion initial public offering for mining services and logistics company BIS Industries.

According to media reports, UBS, Goldman Sachs and Bank of America have been brought in to sound out investor appetite for an offer, probably within the next 6-9 months. That’s assuming that equities hold up.

The news not only looks to be end of KKR’s plans from last year to offload BIS in a trade sale, but also marks a critical turning point on the road back to headline-grabbing Australian sharemarket floats.

While nothing of note has happened yet, Inghams Enterprises, BHP Billiton and Rio Tinto are all widely reported to be thinking about offloading businesses through a float for either much needed cash from an asset or much needed distance from one.

(Incidentally, Rio boss Sam Walsh, who looks to be manoeuvring for a Pacific Aluminium float, has just said he’ll consider brining in joint venture partners to strengthen the company’s balance sheet following Standard Poor’s putting the miner’s A-minus rating on ‘negative watch’.)

That’s to go with the hopes that Genworth Financial will rekindle its plans for a 40 per cent float of its Australian business, along with Hong Kong’s megastar TRUenergy. Then there’s Brookfield Property Group and iSelect, who have also had their names thrown in there.

But the KKR news is arguably more important than all the above. While a float would still be subject to market conditions – the benchmark ASX200 managed to cling to 5000 points yesterday, just barely – the notion of a private equity firm trying to launch a float in Australia would have been ludicrous just months ago.

The unceremonious $2 billion float of Myer by TPG Capital back in November 2010 is widely cited as killing interest from investors, especially retail, and delaying the time at which the IPO window would open once Australian equities stabilised.

Myer shares are still down 33.4 per cent from the price subscribers paid at the time and that’s despite a 56.5 per cent rally since October 2012.

The private equity firm played the market brilliantly and investors paid the price. The very fact that we’re talking about a private equity float is highly significant. Shareholders don’t forgive, some do forget. But if there’s a dollar to be made, let’s do it.

But again, as yet, we’re still just talkin’ is all. And let’s just hope the US and Japan keep printing money and the earnings season continues to give the bulls enough reason to keep the faith.

Macmahon Holdings, Sembawang Australia, Leighton Holdings

Macmahon Holdings shareholders voted overwhelmingly in favour of selling the mining services company’s construction business to major shareholder Leighton Holdings, despite numerous fumbling attempts by a rival suitor.

Eighty-five per cent of votes were in favour of the $25 million deal. Case closed.

But bizarrely, the spurned Sembawang Australia, from the house of Indian conglomerate Punj Lloyd, is thinking about another offer following its rejected $35 million proposal.

When it comes to Macmahon’s construction business, Sembawang Australia is either an irrepressible suitor in the mould of William Shakespeare’s Romeo from the house of Montague, or an unstoppable predator in the guise of James Cameron’s Terminator.

Given that the statement from Sembawang following the resounding affirmative vote to give Leighton the win, we’ll opt for the later.

“We’ll be back,” said Sembawang, quite simply.

The Indian-owned company appeared to hint at another run of some description.

“Sembawang believed that all the construction contracting problems were a symptom of poor executive management,” said the company.

“We now await the crystallisation of what Macmahon said would come to account in calendar Q3 which is the tail of this deal.

“Sembawang could never make an offer to satisfy MAH’s questions – as we were never allowed into the data room LEI were given access to.”

That last bit is where they’ve lost us. Sembawang’s final pitch to prize the construction business from Leighton’s hands was unconditional, with the exception of a formal sale and purchase agreement with Macmahon. No data room.

Sembawang might argue that they would have been more inclined to offer a good price earlier had Macmahon not done an exclusivity deal with Leighton and allowed the Indians to conduct due diligence.

That argument is weak sauce following the all-but-unconditional statement, plus it’s a strangely timed assertion given that Macmahon had made it clear for some time that it wanted out of construction. Time has always been of the essence, why waste so much of it?

Put simply, if Sembawang wanted the business, they shouldn’t have waited until Leighton, an almost 20 per cent shareholder, held literally all the cards.

Sembawang might be the kind of player to think outside the box, but the only alternative that Breakfast Deals can see is to lodge an offer for the entire company, conditional on the construction exchange with Leighton never going ahead and little else. It’d better have a tasty premium there too.

Macmahon has a market cap of $429 million. That quite a bit more than $35 million and sure ain’t gonna happen. Anything else will be noise, particularly given that the shareholders voted so strongly to snub Sembawang and the stock price rose 3 per cent in a negative trading session.

By the way, Macmahon is handing down results on tomorrow.

Virgin Australia, Tiger Airways, Cathay Pacific, British Airways, Macquarie Group

Virgin Australia chief executive John Borghetti has put some distance between the low-cost airline and a plan to significantly increase capacity in Singaporean-owned Tiger Airways, in which it’s pursuing a 60 per cent stake.

The Australian Competition and Consumer Commission is due to hand down its findings on the matter on March 14. While Borghetti has been using the ‘failing force argument,’ where without the support of a rival the target could reduce competition by withdrawing from the market entirely, the former Qantas boss disappointed investors yesterday with a 36 per cent fall in underlying earnings.

As Business Spectator’s Stephen Bartholomeusz points out, the results are a reminder of the numbers posted by Virgin’s main rival Qantas Airways last week. They reflect the reality of a capacity war, where both airlines put extra seats in the air, sacrificing margin, to protect market share.

It makes sense for Borghetti to tone down promises to put more seats in the air with his results starting to hurt from a war with Qantas.

Whether ACCC chairman Rod Sims is willing to buy Borghetti’s story, which is based on a short-term battle for market share and doesn’t factor in the support that Virgin is receiving from Singapore Airlines, Etihad Airways and Air New Zealand, in regards to a deal that will effective return Australia to a two-tier airline market… well, we’ll find that out in mid-March.

Speaking of Qantas, claims that all was fine and dandy between the flying kangaroo and British Airways aren’t looking so hot.

Qantas’s 5-year alliance with Emirates, which is awaiting final ACCC approval in March or April, reportedly annoyed BA and now that annoyance has turned into action.

BA has established a codesharing arrangement with Cathay Pacific, which is still subject to Australian regulatory approval.

According to The Australian, when asked about the future of relations between Qantas and BA, the British carrier’s spokesperson said: “At this time, what we can say is that the joint business will end on March 31, however as part of British Airways’ oneworld relationship with Qantas we will still be offering codeshare on a number of routes across our global network.”

That doesn’t sound fine and dandy.

And while we’re talking aviation, Macquarie Group has been named by The Wall Street Journal as one of the parties interested in bidding for a long-term operation lease of Chicago’s Midway Airport.

The news comes on the back of the Future Fund’s $2 billion offer for the airport assets of Australian Infrastructure Group, which has created some… tension, with the minority shareholders of the AIX assets.

Whitehaven Coal, Ten Network, Seven Group Holdings, Nine Entertainment, Cricket Australia

The elevation of two men to the chief executives seat has put two potential deals into sharp focus.

Whitehaven Coal has named Paul Flynn, the former chief of major shareholder Nathan Tinkler’s private company The Tinkler Group to replace Tony Haggarty. With Tinkler having previous led an attempt to take the company private, the questions are obvious.

Flynn distanced himself somewhat yesterday from his former employer, pointing out that he hasn’t worked for Tinkler since late September. He serves Whitehaven’s interests, nothing more.

If reports that Tinkler has been in New York and Hong Kong trying to drum up interest for another Whitehaven privatisation bid end up culminating in an actual offer, Flynn will be the centre of everyone’s focus.

Additionally, speculation is increasing that if it isn’t Tinkler that makes a move, someone else will, probably Chinese. Although this column is looking forward to the implications of China’s carbon tax proposal sinking in to coal deal whispers.

Meanwhile, Ten Network chairman Lachlan Murdoch, who also a director of News Corp (the parent company of this website) has named News Corp executive Hamish McLennan as the replacement for James Warburton. Murdoch poached Warburton from under the nose of Seven West Media billionaire Kerry Stokes.

That piece of news picked up the interest of many who were scared about the possible influence of News Limited, which owns 50 per cent of pay-TV company Foxtel, on a free-to-air network.

As this column pointed out yesterday, this is largely irrelevant because the consumer watchdog will be eyeing Ten and Murdoch like a hawk. The Australian Competition and Consumer Commission made it plane that it would have serious concerns with the idea of Stokes, who also wanted that Consolidated Media Holdings stake in Foxtel, in the Seven billionaire’s hands.

Of course, on the flipside, Ten is going to be watched closely to make sure it isn’t getting too close to News, the pay-TV owner. Reports about a Telstra Corporation bid for Nine Entertainment, which were denied, met the same fate.

A merger? Forget about it! ACCC says no.

However, the new Ten boss has signalled his interest in securing the exclusive broadcasting rights from Cricket Australia, expected to fetch perhaps more than $500 million.

Seven has also expressed some interest and Channel Nine, fresh from an exhausting debt restructuring, is no enthused by the idea of a bidding war.

Have at it guys and gals!

Oh, and while we’re talking media, Seven Group Holdings is sitting on a $432 million cash pile from that CMH stake sale, which many have speculated will end up being used by Stokes on boosting his stake in Seven West Media.

Chief operating officer Ryan Stokes said investments will be made and debt will be reduced, but a bigger stake in Seven West is not on the list.

Wrapping up

Starting with property, which is heating up at the moment, FKP Property Group remains open to offloading its $1 billion retirement business to major shareholder Stockland as it prepares for a company restructure.

Things aren’t so hot for Becton Property Group, with receivers called in following a failure to reach an agreement with its lending consortium, led by Goldman Sachs.

Between the formidable US investment bank and Fortress Investment Group, $200 million in loans have been called in on Becton, which has a market cap of just $2.5 million.

Turning to mining, it’s also set to be a bad legal day for billionaire Gina Rinehart. The West Australian Court of Appeal is set to hand down its reasoning as to why Rinehart will cover the legal costs of the Wright family that disputes the ownership of Rhodes Ridge.

Rinehart has been stripped of a 25 per cent stake in the undeveloped site, leaving the descendants of Peter Wright, who pioneered exploration of the Pilbara with Rinehart’s father Lang Hancock. The Wrights now have 50 per cent, Rio Tinto has the other 50 per cent and Rinehart has a legal bill to cover.

Still in resources, oil and gas company AWE has received solid interest for its $US600 million Ande Ande Lumu oilfield in Indonesia, according to The Australian. Credit Suisse is still to start a formal sales process.

And finally, The Australian Financial Review reports that the country’s largest fruit and vegetable wholesaler Moraitis Group, is poised to become an asset of Hong Kong’s Chevalier Group.

The newspaper says documents handing the Chinese group a 70 per cent stake in the company are set to be signed this week after five months of negotiation.

BREAKFAST DEALS: KKR hopes