Fresh interest in GrainCorp

SPECULATION of a Russian counter-bid for GrainCorp failed to ignite the company’s share price on Wednesday, though suitor Archer Daniels Midland confirmed it was ”committed” to its $2.7 billion offer.
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News agency Bloomberg reported on Tuesday that Russia’s biggest port operator, Summa Group, was raising money for a foreign grain takeover and was considering an offer for GrainCorp before ADM confirmed its $11.75-a-share takeover offer last week, after boosting its stake to 14.9 per cent.

Moscow-based Summa chairman Ziyavudin Magomedov said in September: ”We are looking outside because Russia doesn’t have a global player in soft commodities markets. We have Glencore, Dreyfus, Cargill here, and Russia, which possesses such a powerful resource, doesn’t have its own worthy global player.”

RBS Morgans analyst Belinda Moore, who expects a higher offer for GrainCorp will be needed to win a board recommendation, said reports that Summa was considering a tilt ”just show that potentially there could be others interested … you’d expect that everyone’s got to look at it”.

Commodities trader Bunge had also recently commented that it would be part of continuing industry consolidation, although it stressed it would be disciplined about acquisitions.

GrainCorp shares rose 6¢ or 0.5 per cent to $12.27 on Wednesday, mildly underperforming the broader sharemarket.

Overnight on Monday, ADM reported a 60 per cent fall in its quarterly profit – due partly to the US drought – and flagged it could need to suspend a share buyback to fund the acquisition.

Net profit for the September quarter fell to $US182 million ($176 million), from $US460 million a year earlier. Sales were flat, falling 0.4 per cent to $US21.8 billion.

ADM chief executive Patricia Woertz said first-quarter results were mixed.

Asked why ADM bought 10 per cent of GrainCorp before launching the takeover, Ms Woertz said it was ”quite common in Australia to do a pre-bid stake, and I think it shows our commitment to wanting to do a deal with them.

”They’re evaluating our bid as they have said, and we’ll leave it there.

”The investment itself is, of course, in line with our strategy … and it will meet our financial hurdles as we continue to be disciplined as we look at these kinds of opportunities.”

With BLOOMBERG

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Envestra plays it cool after strong start

DESPITE a strong start to the year, with September-quarter revenue benefiting from cooler weather, the energy utility Envestra has held its full-year to June 2013 net profit guidance at $100 million.
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Gas sold in the September quarter rose 10 per cent, which helped push revenue to $22 million, although wariness about weather for the rest of the year prompted it to maintain a cautious stance. In the year to June 2012, Envestra posted a net profit of $74 million.

It has flagged cuts to its planned capital spending program in Victoria, where it is in dispute with the Australian Energy Regulator over the rate of return, operating costs and its investment plans.

”Without an improvement in the rate of return … we will have to review our proposed investment program in Victoria,” company chairman John Allpass said at Wednesday’s annual meeting.

The company has signalled a legal challenge to the decision, which will cut by more than 50 per cent planned spending in Victoria – to $350 million – coupled with a modest tariff rise, if it is not revised.

Elsewhere, the company is increasing its spending program to replace about 450 kilometres of gas mains this financial year, which will account for about half of the planned $230 million of capital spending. Part of the upgrade will reduce costly leaks.

Envestra expects an unchanged 5.8¢-a-share annual dividend, which indicates a 6.7 per cent yield.

The dividend might be reviewed, depending on the outcome of its discussions with the regulator, as well as any upgrade to its credit rating, Envestra said. The shares closed up 1.5¢ at 90.5¢.

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Eastern states slowdown hits Transpacific

Transpacific CEO Kevin Campbell: Plenty to think about.SHARES in waste group Transpacific Industries were dumped after it flagged softer than expected earnings because of the economic downturn in eastern states and New Zealand.
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Trading conditions were especially soft in Victoria in the September quarter, it said.

Weak trading had more than offset cost reductions to squeeze earnings before interest, tax and depreciation by 6 per cent, shareholders were told at the annual meeting.

Waste generated from the manufacturing, retail and construction markets in eastern Australia has been soft, which has affected the volume of waste processed by its landfill sites. This was most apparent in Victoria, ”where activity in these sectors has decreased markedly over the past quarter”, it said.

Volumes are also being squeezed after the introduction of the price on carbon, which has increased the cost of landfill disposal by an average of 12 per cent a tonne.

Additionally, Queensland’s decision to remove its waste levy, coupled with a rise of more than 10 per cent in the New South Wales levy to $95.20 a tonne, has resulted in volumes being shifted across the border in northern NSW.

”This has had a detrimental effect on the tonnes we process at our NSW landfill facility and not been compensated for in Queensland,” it said. ”Offsetting some of these declines in volumes is the continuing growth we are experiencing in the resources and oil and gas sectors in Queensland and Western Australia.”

New Zealand was also ”quite subdued”, with no ”major growth” expected there until the rebuilding of Christchurch gained momentum.

Before Wednesday’s disclosure, several analysts had targeted Transpacific shares rising to about $1 on modest profit growth thanks to cost cutting and moves to retire debt.

But the shares were sold off heavily on Wednesday, shedding 13¢ to finish at 76.5¢ in heavy trading.

Earlier this week, JPMorgan analyst Russell Gill cut his earnings forecast for the company by 11 per cent, and now expects it to earn 5¢ a share.

Analysts said they underestimated the leverage of the company to margins from landfill volumes, with the slowdown in manufacturing in Victoria being ”horrendous”.

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Consortium ditches bid for Arrium

THE foreign consortium pursuing Arrium has vowed to abandon its bid to acquire the iron ore and steel maker after a day of drama saw an improved takeover offer emphatically rejected.
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The consortium, which features South Korean steel company Posco and commodities trader Noble, said it was ”deeply disappointed” that Arrium would not begin negotiations or open its doors to allow due diligence on its finances.

The rejection came despite the consortium increasing its offer by close to 17 per cent on Wednesday to 88¢ a share, compared with the original bid of 75¢.

But that improvement was not enough to lure Arrium to the bargaining table, prompting the consortium to say it would ”cease seeking engagement with the Arrium board”.

When asked if it would consider bypassing the Arrium board and taking a hostile bid direct to shareholders, a spokesman for the consortium indicated that such a move was unlikely.

”We have always needed due diligence to understand the business,” he said.

The consortium says it wants to better understand Arrium’s debt situation, speak to its lenders and better understand the technological composition of its steel-making assets.

The consortium has claimed it can improve the viability of Arrium’s struggling steel plant at Whyalla by introducing some of Posco’s ”Finex” technology.

But Arrium chief executive Geoff Plummer has questioned the merits of such a move, given it would require the removal of the blast

furnace that was installed at Whyalla barely a year ago. ”If the blast furnace was approaching the end of its useful life, then it might or might not make sense but at the moment it doesn’t,” he said.

”It’s like having a brand new pizza oven and someone coming along and saying they want to make cakes out of it.”

Arrium believes giving the consortium access to its books and lenders poses a risk to shareholders. Chairman Peter Smedley said the improved 88¢ offer ”significantly undervalues” Arrium and remained an ”opportunistic” bid.

Shares in Arrium were fetching 87¢ barely a week ago, and Credit Suisse analyst Michael Slifirski said on Wednesday an offer ”well above” $1.10 a share would be needed to have any hope of being endorsed by the Arrium board.

Mr Slifirski said the consortium’s bid would struggle to win approval from Australian regulator because some of Arrium’s iron ore assets are near important Defence Department testing grounds in the South Australian outback.

Investors appeared to take the consortium’s threat to abandon the takeover seriously: after spending most of Wednesday morning in a trading halt, the stock resumed trading at about 85¢ a share but fell to 78.5¢ at the close.

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Coca-Cola Amatil has sights on islands

COCA-COLA Amatil has inherited a beer and spirits business in Fiji and Samoa from Foster’s that it plans to invest in to unlock the growth potential for the export of local beer and rum to new markets.
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John Murphy, Coca-Cola Amatil’s managing director of licensed beverages and recently appointed chairman of Foster’s Group Pacific, has written to shareholders in the South Pacific beer and spirits company saying the business outlook for 2013 would largely be determined by continued growth in the Fijian economy as well as further recovery in the global economy.

”A main focus for 2013 and beyond will be to unlock the growth potential of the local and export markets for beer and rum via an increased capital-investment program,” Mr Murphy said in the company’s annual report. ”This will provide the essential plant and equipment upgrades needed to improve our business efficiencies and capability to enhance our ability to compete in export markets.”

After last year’s $12.3 billion acquisition of Australian brewer Foster’s by SABMiller, Coca-Cola Amatil picked up Foster’s assets in the South Pacific, a Fiji brewer that also makes and distributes spirits.

Under the deal, Coca-Cola Amatil bought out Foster’s 89.6 per cent stake in Foster’s Group Pacific for $58 million. The company remains listed on the South Pacific Stock Exchange and has a sprinkling of minority shareholders on its register. It was a good fit as Coca-Cola Amatil also holds the Coca-Cola bottling franchise in Fiji and the company plans to use the smaller brewer as a base to launch its return to brewing in Australia after it serves out a two-year, non-compete clause agreed to with SABMiller.

But in the short term and in need of working capital to increase its infrastructure, the Fiji beer business is struggling. The annual report released this week shows sales revenue for the group rose marginally, from $F72 million to $F74.56 million while net profit slumped by nearly a third, from $F6.9 million to $F4.3 million.

Sales volumes for the 2012 financial year were up 1.5 per cent to 3.352 million nine-litre cases.

Fiji beer sales volumes were up 2.5 per cent to 1.969 million nine-litre cases, but spirits and mixed drinks showed stronger growth, up 9.7 per cent.

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