BREAKFAST DEALS: Packer spins the wheel
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James Packer's interest in Crown increases as Macau proves to be a winner for rival casino group Wynn. Elsewhere, the speculation persists around BHP and AWB and Kerry Stokes eyes a new TV channel.
James Packer and Crown
Billionaire casino mogul James Packer has increased his stake in Crown to 40 per cent, according to media reports, fuelling rumours that the casino group could be taken private. Privatisation rumours have previously been squashed by Crown's board, saying that no such plans had been disclosed to the company's directors, and it would appear just as likely that Packer is placing his excess capital in a company that could ride the wave of higher expectations for the casino sector over the short to medium term. Those higher expectations have been amply illustrated by Friday's float of Wynn Macau in Hong Kong. Unlike other recent IPOs in Hong Kong and on the mainland Chinese exchanges, Wynn rose on its debut, closing 6 per cent higher at $HK10.70 per share. The $US1.63 billion listing was the world's sixth largest for the year and augurs well not just for Crown – which also has casino investments in the former Portuguese colony, 60 kilometres southwest of Hong Kong – but also for Las Vegas Sands Corporation, which plans to raise up to $US2 billion via a Hong Kong IPO. Wynn and Sands, run by Vegas moguls Steve Wynn and Sheldon Adelson respectively, have been hurt by lower revenues in the United States but investments in the gambling enclave of Macau have stemmed the red ink. The dynamic is familiar to Packer, who also has badly-performing assets in the US, but even there the situation is changing as the 'green shoots' of slower declines and stabilising markets entice punters back to the slot machines.
Kerry Stokes and Seven Network
Speaking of moguls, Kerry Stokes, who recently vied with James Packer for control of Consolidated Media Holdings, is set to launch a new standard definition television channel. The channel, tipped to be called ‘72’, according to the Australian Financial Review, will compete with Nine's new network ‘Go!’ and Ten Network Holdings' ‘One’. Nine, which used to be part of the Consolidated Media empire and is now owned by private equity, has seen Go! do better than expected and last month’s coverage of the NRL Grand Final was a case in point. Still, pay-TV is likely to continue to be the main game in town and despite pressure for the Seven Network to launch 72 before the 2010 ratings year, Stokes is likely to be more interested in what happens to Foxtel now that Telstra Corporation’s 50 per cent stake is uncertain. Under the controversial separation bill introduced by communications minister Stephen Conroy last month, Telstra would need to offload its stake in Foxtel and its coaxial cable network if it is to acquire additional spectrum for advanced wireless broadband. The most obvious bidders for Telstra’s half of Foxtel would be quarter shareholders News Corporation and Consolidated Media, but industry observers believe that Stokes is just as likely to bid for Foxtel scrip under Seven as he is through ConsMedia, of which he controls 19.9 per cent against Packer’s 40.8 per cent. In the meantime however it’s business as usual. Last weekend Prime Minister Kevin Rudd dropped into Seven's 42nd charity telethon, which was raising money for Perth's Princess Margaret Hospital. Rudd, who spent the previous night at Stokes's luxury compound at Broome's Cable Beach, donated $1.5 million to the telethon on behalf of the federal government.
China resources intrigue
Elsewhere in the mogul files, billionaire Clive Palmer is recovering from a collapse on the weekend while watching his A-League soccer team Gold Coast United play against the Brisbane Roar. If Palmer has any swoon-inducing worries however it's not the performance of United – they won 1-0 – but the relationship between China and Australia, in which he has a great stake via his China First project in Queensland and other ventures. The investment relationship between Australia and China has been in sharp decline lately and the expected trial of detained Rio Tinto executive Stern Hu could once again raise nasty rhetoric on both sides of the divide. Hu, along with three other Rio employees, was arrested in July and later charged with stealing commercial secrets. The arrests came in the wake of a cancelled $US19.5 billion investment deal between Rio and Chinalco and Sino-Australian relations have also been hurt by a visit to Melbourne and Canberra by exiled separatist Rebiya Kadeer and an upcoming Australian tour by the Dalai Lama in December. Mostly, however, the relationship has been chipped away by what Palmer has controversially described as a “racist” policy by Australia’s Foreign Investment Review Board. The FIRB has knocked back several investment deals by Chinese companies this year, notable ones being China Minmetals' complete takeover of OZ Minerals (the acquisition of OZ’s project at Prominent Hill was canned on national security grounds) and China Non Ferrous Mining's takeover of rare earths miner Lynas Corporation. FIRB director Patrick Colmer also made waves by publically stating that the board would prefer Chinese investments in major Australian companies to be capped at 15 per cent. More worrying to Chinese investors perhaps is that such statements are not backed by official FIRB policy. The foreign media can thus be forgiven for describing Australia's FDI policy as "murky and unpredictable". Most recently, Yanzhou Coal has been told to resubmit its $3.5 billion bid for Felix Resources, according to the Australian Financial Review. But hope may be around the corner in the form of Mongolia, according to The Australian. Chinalco could soon be a co-shareholder with Rio Tinto in the $6.8 billion Oyu Tolgoi copper-gold project if and when 66 per cent shareholder Ivanhoe Mines reduces its stake. Such a cohabitation with Chinalco may seem unusual for Rio, epecially after the official Chinese press likened the Anglo-Australian miner to a "dishonourable woman". Ultimately however, like with all things, it's about money. And despite the rhetoric the deals between China and Australia are about money too. They're unlikely to run into too many problems as long as that remains the case.
BHP Billiton
Elsewhere it has been rumoured that BHP Billiton could this week announce a bid for United Minerals, 11.2 per cent owned by China Railway Materials Corporation (subject though to FIRB approval). It’s also been rumoured in today’s AFR that China's Jinchuan Group could bid for BHP's Ravensthorpe nickel project. For now however, the rumours about United seem a little more solid. And that potential deal would not only deliver a windfall for China Railway but would most likely boost the fortunes of Fortescue Metals Group and the members of the North West Iron Ore Alliance, which remain notionally favoured by Chinese steel buyers in the wake of BHP’s iron ore merger deal with Rio Tinto, which gallingly came after the Chinalco deal (see above) fell apart. United isn’t the only potential acquisition for BHP however. We’ve listed several possible scenarios in the past, but the most talked about is a potash takeover in Canada, whether for The Mosaic Company, Potash Corporation of Saskatchewan or a smaller player like Potash One or Athabasca Potash. BHP may need to act fast however. Reuters has reported over the weekend that several Indian companies are in talks with Canadian potash producers and in the words of Canadian analyst Robert Winslow of Wellington West: "It's like going to a dance, if you don't partner up with the pretty girls, then there might not be any pretty girls left." Indian Farmers Fertiliser Cooperative (i.e. the other IFFCO), Bombay-listed MMTC and Rashtriya Chemicals & Fertilizers are all believed to be eyeing Canadian potash producers.
Agri deals
Potash is of course a key ingredient in many fertilisers and a number of deals in the agricultural sector have been at the forefront of attention recently. A fortnight ago state-owned Chinese group Sinochem made a $2.8 billion takeover offer for chemicals distributor Nufarm and last week Graincorp bought United Malt Holdings for $757 million. Graincorp had been a potential merger candidate for Saskatchewan-based Viterra, which also recently took over ABB Grain for $1.6 billion. Viterra's other possibility, AWB, has also been in the news recently with the market speculating on who it will partner with in its own attempts to grow into a global commodities business. AWB’s transition from a disgraced former wheat export monopoly to an emerging agricultural powerhouse hasn’t been simple, yet the worst is believed to be behind it. Late last month AWB announced a $359 million entitlement offer and a $100 million institutional placement at $1 per share. AWB closed at $1.22 on Friday and with the raising now largely out of the way, plus the dismissal of a latent US lawsuit over the Iraq oil-for-food scandal, eyes are focussed on a possible grain trading joint venture. American agricultural giant Bunge is believed to be the most likely JV candidate, especially as it is staffed by several former AWB employees, but Archer Daniels Midland Company, Louis Dreyfus, Cargill, Glencore International and Noble Group are also possibilities. Glencore and Noble, however, both recently completed deals with sovereign wealth fund China Investment Corporation and for this reason may be less attractive to AWB. Another candidate, Olam International – which last week purchased Timbercorp's almond assets for $128 million – may similarly be a no-go after its investment deal with Singapore's sovereign wealth fund Temasek Holdings. Although it's denied by all concerned there have been fears of mercantilism in the global agricultural and resources sectors, especially in the wake of the global financial crisis as protectionist pressures increase. Just like the Dutch and British East India companies, which once competed furiously in the spice, tea and tobacco trades, today's global commodities traders are becoming increasingly aligned to a home market and, in turn, that home market’s government.
Wrapping up
Coming up in Deals TV, we have stories on the IPO front, where Witchery and Independent Liquor are added to the ever-growing list of possible listers. Also, a look at possible floats overseas, talk on Amcor, Servcorp and Transurban, plus threats to Babcock & Brown Infrastructures recapitalisation and a big move in energy trading with Citigroup selling its Phibro division to Occidental Petroleum. Those deals will be up on Business Spectator later this morning.
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