Rio might tweak deal to pre-empt FIRB, investor concerns
Sydney Morning Herald
Friday June 5, 2009
THERE is increasing speculation that Rio Tinto and Chinalco will publicly announce revisions to their proposed alliance before the Foreign Investment Review Board makes its ruling later this month, and there are some good reasons why.Any changes after the ruling is made could invite more scrutiny and delays. So it would seem the best option would be presenting a fully revised deal by next week that would meet enough FIRB and investor concerns to gain shareholder approval.The combined rise of the Australian dollar and Rio's share price means the miner's shares are trading above $US53.55 ($65.50) the average weighted conversion price of the controversial $US7.2 billion convertible bond component.It would be interesting to see what an independent expert would make of that and whether, if the bond component was not found "fair and reasonable", the whole deal would fall apart without the need for a break fee to be paid.British investors have found yet another reason to be incensed by the deal. These investors had been upset in February when Barclays offered shares to a select group of investors from Abu Dhabi and Qatar rather than to all shareholders, and in the process ran roughshod over the notion of "pre-emption".Sheikh Mansour of Abu Dhabi sold his shares in the finance group for a 1.5 billion ($3 billion) profit this week, showing the eternal wisdom of buying low and selling high. Rio, of course, did the opposite in the 2007 purchase of Alcan. This put it in such a weak position that the Chinalco deal appeared an attractive solution to its woes well, at least back in February.But even though a $US10 billion rights issue would now prove less dilutive than the Chinalco deal, Rio's board would suffer a big loss of face and possibly anger its largest customer, China, if it decided to pull out of the alliance.It remains to be seen whether shareholders are fundamentally opposed to the idea of a deal with a customer or if a few tweaks here and there will be enough to quell outstanding concerns.Unhappy travellersFlight Centre's public spat with Singapore Airlines over commissions threatens to decide whether the structural decline of travel agencies will accelerate.That's the view of UBS analysts who have taken a keen interest in Flight Centre's decision not to offer Singapore Airline fares as an option to its customers because of the feud.UBS believes the stand-off is evidence of "continued structural decline" in travel agency commissions and poses the risk to Flight Centre of other carriers following the airline's lead and using the downturn to cut distribution costs."There is a risk that other airlines may demand more favourable terms with the travel agency industry given significantly reduced airline margins on outbound travel as a result of low air fares and weak demand," UBS said.The broker points out that other agents such as Stella and Jetset could pick up the Singapore Airlines flights that Flight Centre is refusing to sell. The airline accounts for almost 12 per cent of international passengers who fly in and out of Australia.UBS believes Stella, the owner of Harvey World Travel, could be the first agency to bow to Singapore Airline's demands because of its high debt levels.Parmalat scrutinyThe competition regulator's examination of Woolworths' purchase of the Thomas Dux specialty chain, a move that has upset Metcash, isn't the only investigation it is undertaking in the food space.It is also asking market participants about Parmalat's proposed $70 million acquisition of certain dairy assets from Kirin-owned National Foods. The dairy assets involved are the very ones the ACCC required National Foods to divest for competition reasons after its purchase of Dairy Farmers last year.The letter sent to interested parties this week seeks views on whether Parmalat has an "intention to maintain and operate the divestiture business" and whether it is independent of National Foods.There had been some speculation Parmalat, an Italian company, would quit its relatively small business in Australia after it lost out on the purchase of Dairy Farmers to National Foods. But since this new purchase would represent a sizeable boost to the size of its business, it is curious the competition regulator appears to remain concerned it will leave the Australian market.The ACCC expects to announce its findings on June 25.Aviva suitors line upThe Aviva business in Australia should not be very structurally appealing to AMP, but it might make a move if a bargain price makes it too good to refuse, Merrill Lynch says.AMP and NAB have been named as likely buyers of the business and, unlike other potential bidders, they have not gone out of their way to deny having any interest.Merrill Lynch said Aviva was unlikely to get top dollar for the business in light of the tough investment market and the stressed capital position of the parent. "This may make the business more attractive to some potential buyers than it might otherwise have been, given the assets on offer," the broker said.xchange@smh.com.au
© 2009 Sydney Morning Herald
