Investment Matters

What Matters this week

Takeovers matter this week.  I reviewed (coincidentally) my model for the gas pipeline company APA Group a couple of weeks ago.  The conclusion was (simplistically) nice business; waaayyyy too expensive.  Well someone, namely a cashed-up Hong Kong-based consortium led by CK Infrastructure, disagrees – about the latter anyway.  They have tentatively offered (subject to due diligence, regulatory approvals, etc, etc) $11per share, a 33% (!) premium to the close before the announcement.  There is a high possibility it will all become mute if FIRB approval for the takeover of these strategic assets (more so than ever at the moment) is denied.

Atlas Iron, a minnow iron ore producer, received a tentative takeover offer from Mineral Resources, pushing its share price up 43% last Friday.  Then late this week Fortescue Metals (a mid-tier listed iron ore producer), and then not to be outdone Hancock Prospecting (privately owned, Gina Rinehart backed), acquired substantial blocking stakes in Altas’ share register.  What do they all want?  Altas’ iron ore reserves?  No.  Atlas’ name?  Nope. It is all about the right to develop the port at Port Headland.  But in a potentially huge "oops", the day after their substantial notices come out, North West Infrastructure (NWI, controller of port development) advised that the two key berths are set aside for junior miners, which it doesn’t even classify Altas to be.  So there are now some hugely expensive red faces – unless they decide to fight NWI in the court.

The manufactured home estate retirement developer and operator, Gateway Communities, received a takeover offer (also tentative, conditional, etc.) from a US-based retirement community operator Hometown.  The share price on the day of the announcement was +14.8%, and now above the $2.10 offer price – i.e. the market is expecting an increased offer or counteroffer from another party.

Mineral Deposits’ (mineral sands out of Senegal) joint venture partner, France’s Eramet, upped their conditional takeover offer from $1.46 to $1.75 per share.  But the company is still fighting the offer, as it considers it to undervalue the company.  It has reserved its right to accept it though…

In other news this week, fuel importer, refiner and supplier Caltex advised it expects to record a H1 (period ending 30-Jun-18) profit of between $385m-$405m (up 49% versus $265m pcp).  The acquisition of Gull (NZ), a one-off gain on the value of inventory, and higher wholesale fuel earnings drove the result.

Infant formula and food producer, Bubs, has hopped aboard the Chinese band wagon (following Blackmores, A2M, Bellamy’s et al) – announcing a supply agreement into China last week, and major capital raising this week (to fund their growth).

In significant news over the last few weeks, Wesfarmers put its abhorrent foray of Bunnings UK to bed formally, with the sale of the UK business (Homebase).  The company announcement stated that “The investment has been disappointing”.  Understatement of the year.  The quantum of the destruction of shareholder value is quite staggering.

Retail Food Group announced another downgrade.  Can’t recall what number this was.  And the Senate Enquiry (reporting 30-Sep-18) is likely to highlight issues around the sustainability of many franchise systems, especially in regard to RFG – franchisor too much $ / power, franchisees the opposite.

And bank woes continue – this time for ANZ in regards to the ACCC alleging cartel conduct (in regard to the disposal of shares not subscribed for in a 2015 capital raising).  Well done APRA for ensuring the market was informed in a timely manner that there was a large number of institutional shareholders who didn’t take up their rights.  The ACCC is once again proving to be a regulator with real teeth.