BREAKFAST DEALS: More ING for ANZ?
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Could ANZ buy ING’s other assets in Australia or do its next acquisitions lie overseas? Meanwhile, is Myer being overvalued and are the agriculture and fertiliser sectors about to enter an M&A boom?
Australia and New Zealand Banking Group
ANZ Banking Group has bought out joint venture partner ING Groep in Australia and New Zealand for €1.1 billion ($1.86 billion). Separately, The Australian has said that ANZ, one of the world's best capitalised banks, could also raise a further $2 billion for acquisitions. This unsourced assertion seems unlikely though, considering that ANZ appears to have too much cash, not too little. The ING deal, which sees ANZ acquire the Dutch lender's 51 per cent stake in their trans-Tasman wealth management and life insurance operations, is being funded out of ANZ’s cash reserves but will still leave the bank with a Tier 1 capital ratio of 9.5 per cent. The deal comes after ANZ's $US550 million acquisition of Royal Bank of Scotland's operations in five Asian markets. The takeover will make ANZ the third biggest life insurer and fifth largest retail fund manager in Australia after years of neglecting the wealth management business relative to its peers. It isn't thought that ANZ will acquire ING's private banking assets in Asia however. ANZ, along with Commonwealth Bank of Australia has been considered an outside chance for the unit, estimated to have a $US2 billion enterprise value. ING has been trying to sell between €6 billion and €8 billion worth of assets globally to pay down debt.
HSBC is thought to be the leading bidder for the ING Asian sale with sourcing telling Reuters that Swiss bank Julius Baer is out of the race. The Zurich-based lender is however believed to be interested in ING's private banking assets in Switzerland, which were originally thought to be sold as a package alongside ING's Asian assets. HSBC meanwhile announced over the weekend that its chief executive Michael Geoghegan would relocate permanently to Hong Kong. Although HSBC stands for The Hongkong and Shanghai Banking Corporation, since 1993 it has had its head office in London. The return to China signals HSBC's renewed Asian focus, a focus that is familiar to ANZ chief Mike Smith, a former HSBC executive. Smith, who has been pushing for ANZ to become a super-regional lender, is believed to be eyeing his next major acquisitions in the region. The alternative of course is ING’s other assets in Australia: its investment management funds, such as the ING Office Fund and the ING Industrial Fund, and ING Direct, its online savings product.
More from Hong Kong
As HSBC returns its chief executive to the former British colony, Hong Kong is seeing an exceptional resurgence of initial public offers on its stock market. While new listings are generally moribund the world over, Hong Kong, like its mainland competitor Shanghai, is seeing a swath of floats from both China and elsewhere. Two new deals put the estimated $3 billion in value float of Myer on the ASX into sharp perspective. Casino mogul Steve Wynn – a rival to Crown's James Packer – has a $US1.6 billion IPO of his Macau unit at a 10 times cover ratio, according to sources, while a $US30 billion IPO of Russian aluminium giant Rusal is expected to be approved by the company's board in the coming days. Recently Hong Kong has listed Metallurgical Corporation of China (MCC), which has a range of assets in Australia, Sinopharm Group, China's biggest drug distributor, and the gloriously named Glorious Property. Hong Kong is tipped to lead an expected $US100 billion in issuance across the Asia-Pacific in 2009, but already there are signs that the market is overheating. Not only is China and Hong Kong's market exceptionally over-valued with P/E ratios of 50 and above not uncommon, but the most recent IPOs have been falling on debut. MCC, for instance, fell a crashing 12 per cent on the first day of trade. That’s bad news perhaps for Sheldon Adelson – another Packer rival – who has been considering a Hong Kong listing for the Macau unit of his Las Vegas Sands Corporation.
More on Myer
When Myer formally lodges its prospectus this morning, interest from brokers is believed to give the department store company a value of $3 billion or 16.5 times estimated 2010 earnings. While this valuation pales to some of the stories from Hong Kong, Myer is undoubtedly the most eagerly-awaited float in Australia this year and a $3 billion valuation is hardly a bad result for private equiteers Texas Pacific Group and Blum Capital, which acquired the company from the old Coles Myer in 2006 at less than half that price. Whether that valuation is good for retail shareholders depends on whether you believe that CEO Bernie Brookes' turn-around strategy still has value to give or if you think the market is overvalued in general for present economic conditions, newly-listing retail stocks in particular. For one however, it doesn’t seem to bother David Jones chief Mark McInnes, who told cable television network Sky over the weekend that he looked forward to having his company's main competitor scrutinised alongside it on the same public board."You know we made $156 million last year,” McInnes said. “They made $109 (million). We have $100 million worth of debt, they have $400 million worth of debt, which means we have got more profit after tax to pay dividends. We have a financial services business which last year made $41.3 million, they don't. We own our own properties in Sydney and Melbourne, they don't.” DJs also has model Miranda Kerr on its brochures, whereas Myer has Jennifer Hawkins. It can be a very subjective comparison.
China’s voracious appetite for food companies
Back to China now where investment decisions in Australian companies seem to be made without the use of Australian fashion models. And it doesn’t seem that the type of models made in Microsoft Excel are being used either, if it’s true that Nufarm, a company with market cap of around $2.4 billion, could be bought by Sinochem this week for $3 billion. Maybe that summation’s not fair, considering that today's $11 per share levels are still sharply down from last year's $18 per share peak, but there’s talk at least from China’s perspective that acquisitions in the soft commodity space are being overplayed. Recently the country’s sovereign wealth fund, China Investment Corporation, did deals with major grain traders Glencore International and Noble Group, and Ausnutria Dairy was another one of last week's apparently overvalued Hong Kong IPOs. Macquarie Group and BOC International led the dairy group's offer. Ausnutria imports milk powder into China from Australian suppliers Tatura and Murray Goulburn Co-Operative. Still, China has over a billion mouths to feed and if you are a believer in the Asian meat and dairy revolution then both yields and efficiencies will have to improve otherwise commodity prices – and probably profits – will skyrocket.
BHP Billiton seems to be placing its bets that way, with continuing talk that it will soon buy either The Mosaic Company from privately-owned Cargill or the Toronto-listed Potash Corporation of Saskatchewan. Both Potash Corp and Mosaic are in the business of mining the key fertiliser input, which although down over 50 per cent from last year's highs, is believed to have a long-term bull run ahead of it. Potash is furthermore a tightly-controlled commodity, with 80 per cent of the world's supply coming from just eight companies, according to Reuters data. Potash company stocks may be 60 per cent down from 2008 levels, but all the more reason for BHP to swoop in. Interestingly, it has separately been reported this weekend that Chinese and Indian companies including the Indian Farmers Fertiliser Co-operative (i.e. the other IFFCO) are eyeing smaller potash acquisitions in North America. Also in that part of the world Viterra, which last week completed the acquisition of ABB Grain, has signed an agreement to acquire Canadian distributor Lakeside Fertilizer for an undisclosed amount.
Wrapping up
There’s also some interesting rumours coming through on Chinese acquisitions for Australian gas and iron companies plus more developments on Macquarie Airports that we’ll be covering in today’s Deals TV. We’ll also be discussing Infigen Energy, Seven Network and Lynas Corporation, plus mentioning the latest on the Cadbury-Kraft deal overseas.
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