BREAKFAST DEALS: Spotless hangers on

Spotless Group might have finally conceded to Pacific Equity Partners, but what will happen to the business once the private equiteers take over? Will the Braiform coat hanger business be on the chopping block? Meanwhile, National Australia Bank has finally put the fences up around the good bits of its UK footprint, rather than selling the lot for a steal. Elsewhere, Gloucester Coal’s independent experts have given the Yancoal Australia merger proposal a big tick, Kagara has jumped into the arms of voluntary administrators and Aurora Oil & Gas has rocked an old-school takeover for America’s Eureka Energy.

Spotless Group, Pacific Equity Partners

As expected, Pacific Equity Partners has secured the unanimous approval of the Spotless Group board for a $719 million deal. In accepting the $2.71 a share offer – made up of $2.63 cash, a 5 cent dividend already paid to shareholders and a 4 cent special dividend – Spotless chairman Peter Smedley said it represents the best opportunity for shareholders in terms of short-term relative cash.

With the unanimous recommendation of the board, shareholder approval will be a doddle. The question now is what PEP does with Spotless. The company’s troubled Braiform coat hanger business was thrown up during the sale negotiations as a possible sale candidate. Speaking to The Wall Street Journal, PEP managing director Rob Koczkar said asset sales are "not something that we’re immediately considering". This column expects to hear whispers about a Braiform sale within three months. In the meantime, Koczkar also says that PEP’s Anthony Kerwick and himself will be joining the Spotless board.

Smedley believes the company’s fundamental value is nothing short of $2.80 and his view that this deal is good when it comes to relative value shows he still believes this. Smedley also had some words for the teams at Investec and Citigroup, which advised Blackstone in its unsuccessful bid to capture Spotless at $2.50, only to then get in the ear of PEP. "So this bid actually started with the same jockeys in May last year,” Smedley said. "They changed horses in October and ran with the big again.”

National Australia Bank, Clydesdale Bank, Yorkshire Bank

National Australia Bank boss Cameron Clyne has finally reworked the UK strategy that has undermined the Melbourne-based bank for the best part of a decade. NAB will take a £456 million ($708 million) charge, axe 1400 jobs, close dozens of branches in the south of England, shut down six back-office processing centres and wind down commercial lending. The news comes after an internal review where a few options – all of which have been speculated about for years – were canvassed.

NAB explained quite concisely why it had not other choice than to restructure its UK operations. Could it leave things as they are? No, the UK economy is double dipping. Could NAB double up and expand? It considered it, but no; the UK economy is that ordinary that the cash would be better spent at home. How about offloading Clydesdale Bank and Yorkshire Bank entirely? The discount, thanks to the poor economic outlook, to book value would be too great. Business Spectator’s Stephen Bartholomeusz expands on this point (NAB plays its lonely card, April 30).

The only thing left to do is a restructure. It’s been pointed out in some quarters that a sale wouldn’t make sense now, but making the unit more efficient will enhance its value down the track should NAB decide to head for the exit at a later date.

Gloucester Coal, Yancoal Australia

When Gloucester Coal shareholders vote on the $8 billion merger proposal with Yancoal Australia, of China’s Yanzhou Coal, they’ll have in their hands the encouraging independent expert’s report. Deloitte valued the cash-and-scrip proposal – $3.15 in cash and one share in the combined entity – at somewhere between $9.35 and $9.48 a share. Given that the same experts valued Gloucester’s fair value between $8.90 and $9.65 and the stock closed at $7.88, this deal is looking pretty.

The independent expert report speaks for the independent directors not associated with Gloucester’s majority shareholder, Hong Kong’s Noble Group, which supports the proposal. Shareholders will vote on the proposal on June 4.

Kagara

Things have turned badly for Kagara, quickly. The troubled miner called in voluntary administrators yesterday in a bid to save the company after suspending its operations at the Balcooma and Mr Garnet sites last week. Kagara says falling zinc and copper prices have caught it out, along with rising production costs and the high Australian dollar. The administrators in question, Michael Ryan, Mark Englebert, Stefan Dopking and Quentin Olde, are from Taylor Woodings. A creditor meeting will be held within two weeks.

Ryan said Kagara has a portfolio of "high quality, sought-after assets” and it was less than two months ago that we were talking about it. It was early March when Kagara secured its long-awaited sale of the Lounge Lizard asset. Immediately afterwards, Kagara announced an interim loss than was far worse than the market was expecting, the shares plunged 40 per cent and the company’s chairman and founder, Kim Robinson, resigned. Kagara shares haven’t changed hands in 10 days, having lost 65 per cent in the last three months.

Aurora Oil & Gas, Eureka Energy

Australia’s Aurora Oil & Gas has opted for a straight-shooting, unconditional on market cash bid offer for US shale play Eureka Energy. Aurora instructed Euroz to 45 cents a share to anyone willing to sell, giving the target a $107 million overall value with a 36 per cent premium to the previous trading price.

Sound good? Unfortunately for Aurora the stock opened at 47.5 cents and kept a premium to the takeover price, indicating the market believes a better offer will be forthcoming. The problem is Eureka was considered undervalued before Aurora stepped in. We’ll have to wait and see if any rival bidders emerge. If not the share price could lose some of its heat very quickly.

Commonwealth Property Office Funds

Commonwealth Property Office Fund shares are showing signs of breaking out of an almost three-year period of range trading amid rumours that Dexus Property management might try to seize control from Colonial First State. The theory is that new Dexus boss Darren Steingberg, formerly of Colonial, might make a bid for the $2.5 billion fund. With a market cap almost half that of Dexus, Steinberg would have to be pretty confident that the play would pay off.

Wrapping up

Mining giant BHP Billiton has secured another handful of exploration permits around its headliner Olympic Dam mine in South Australia. Archer Exploration will receive $8 million in exchange for five licences covering 3700sq km. The Australian Financial Review reports that Queensland Gas, now in the grips of BG Group, has offloaded its 8.1 per cent stake in junior explorer Senex Energy. The stake was inherited through the acquisition of Roma Petroleum.

And lastly, The Australian carries a story which quotes a handful of legal experts casting doubt on the ability of Optus to muster a case strong enough to get an audience with the High Court. This would mean the deal between Telstra and the AFL and any other subsequent sporting codes would be secure.

More from Business Spectator