UNIT University Network for Investing and Trading UniMelb

M&A and Deals 18/04/2018

By: Mazen Elsabrouty

Santa Comes Early for Santos

Santos, the second largest Australian owned oil and gas firm, has recently received a “knock-out” takeover offer of $13.5 billion by US Private Equity firm, Harbour Energy. It is a case of third time lucky for Harbour Energy, having seen its previous two bids rejected by the Santos board (with the most recent being $6.37 per share).

Based on an indicative offer price of $6.50 per share ($6.13 per share cash and $0.37 per share dividend), this latest bid comes in at a 28% premium to Santos’ last closing price – making it the world’s biggest private equity deal in this sector. Despite the recent positive price trend of Santos shares since July 2017 (share price was at an all time low of $2.90 then), Santos shares are still trading well below its peak price of $17.85 back in June 2008. Most importantly, should the Foreign Investment Review Board (FIRB) accept Harbour Energy’s offer and the bid be successful, Santa may just be coming early delivering capital gains for Santos shareholders. With the Santos share price last reaching the $6.50 mark in July 2015, this may be the beginning of the end for Santos shareholders given its tumultuous plight since the GFC.

Accolade Wining and Dining with Private Equity Giant – The Carlyle Group

The Carlyle Group, one of the largest private equity firms worldwide, is buying CHAMP Private Equity’s Accolade Wines for $1 billion. CHAMP Private Equity, an Australian-based private equity firm, acquired an 80% stake in Constellation Brands back in 2011 for $290 million to create Accolade Wines. In true private equity spirit, CHAMP was looking to divest Accolade in the future to realise a return on their investment, which is why they had recently been mulling over a potential IPO before The Carlyle Group swooped in.

Similar to CHAMP, Carlyle hopes to develop and invest in Accolade, targeting growth opportunities in the burgeoning Asian market before divesting to realise a sizable return. This is Carlyle’s third Australian deal in the past 12 months (the two others were: buying iNova Pharmaceuticals for $1.2 billion and selling its stake in Coates Hire for $517 million), highlighting that private equity buyouts – which are more commonplace in the US and Europe – may be turning a tide here in Australia. To fund the Accolade purchase, Carlyle has turned to European debt markets in search for capital, with Citi and Credit Suisse being advisers for the funding round.

Rio Tinto Up and Out with Coal

Rio Tinto has recently divested its final coal asset, the Kestrel mine in Queensland to the consortium, EMR Capital and Indonesia’s Adaro Energy for $2.9 billion (advised by Credit Suisse). Despite being one of the world’s largest metals and mining corporations, Rio Tinto is now the only major mining firm that has no coal assets – a major point of difference between itself and competitors. With increasing pressure from global pension funds and sovereign wealth funds to go more “green” and stay away from coal, Rio’s divestment has not only made operations more lean and clean but also ensured the maintenance of a strong balance sheet.

With the proceeds of this sale, Rio aims to further pay down debt and launch share buyback programs (pencilled in for August 2018 and February 2019) as part of its commitment to maximising shareholder value. Although UBS analysts, amongst others, were “impressed” with the Kestrel sale price, they believe that the $13.5 billion valuation implicitly factored in a long term coking coal price of US $170 per tonne instead of US $120 per tonne consensus.

Source: Yahoo Finance, ABC, AFR, Business Insider, SMH

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