Monthly M&A Insider - Mergermarket

Australia
Looming recession keeps Australian M&A
on backburner
• Despite the recent implementation of the unprecedented
A$42bn second round Government stimulus package
and the Reserve Bank of Australia cutting interest rates
by another 0.25% bringing its total cuts to 4.25% since
September, there is now little doubt that Australia is indeed
already in a recession. It is also obvious that the economic
outlook has already firmly depressed the Australian M&A
market with only 48 deals announced so far this year,
placing the quarter firmly as the slowest quarter in five
years. The total M&A values has surpassed $17.8bn in
the first quarter of 2009, which is actually ahead of the
quarterly average for 2008, but this is mainly a result
of Rio Tinto agreeing to sell its stakes in nine mining
assets to Aluminum Corporation of China (Chinalco),
for a total consideration of $11.8bn, and looking beyond
this transaction there is not much good news for M&A
practitioners.
• In line with the rest of the market, the Australian private
equity firms have not returned with any kind of confidence
or aggression in 2009. Low valuations and stressed
investors have historically constituted great purchase
opportunities for cashed-up private equity players, but
with only a handful of smaller private equity transactions
in the fourth quarter of 2008 and even fewer deals in Q1
2009, cash so far still seems to be king in the Australian
market. In fact, the $278m buyout of Consolidated
Pastoral Company by Terra Firma Capital Partners, and the
$57m buyout of a 75% stake in Centric Wealth Advisers by
CHAMP Private Equity announced in early January remain
the only two Australian buyouts so far this year.
• The private equity houses are also increasingly holding
onto their current investments, and with a rapid rise in
company valuations looking less and less likely, only an
increased need for private equity houses to rapidly convert
holdings to cash will see any short-term change to this
deal drought. So far this year the only three announced
exits are the $408m sale of a 9% stake in Fortescue
Metals by Harbinger Capital, the $248m sale of HeartWare
International to Thoratec by Apple Tree Partners and
the $71m sale of Australian Discount Retail to Retail
Adventures by Catalyst Investment Managers and CHAMP
Private Equity.
• In line with the previous years, the energy and mining
sector remain the key deal generator in the Australian
M&A market. The sector has so far generated eight of the
ten largest announced transactions this year, accounting
for a staggering 86% of the total M&A values for the year
to date.
1 All values are in US dollars unless otherwise specified
China Minmetals returning to OZ Minerals after
Government rejection
• In the second largest announced transaction in Australia
this year, China Minmetals, the China based minerals
trader, in February made a $2.4bn bid (including net debt)
for Australian mining company OZ Minerals. However, due
to the importance of OZ Mineral’ Prominent Hill assets for
national security, the Australian Government would not
approve the transaction under its initial structure, forcing
China Minmetals to lapse its original offer.
• However, the two parties were quick to announce that a
revised structure would be developed, which would both
adhere to the demands of the Australian Government and
secure the original business fundamentals that brought
forward the offer in the first place. After working out the
details of such a structure, the parties signed a new sale
implementation agreement in mid-April, under which China
Minmetals will acquire certain of OZ Minerals assets -
excluding Prominent Hill and Martabe - for $1.2bn on a
debt free basis. The parties are aiming for completion
of the transaction in mid/late June 2009, subject to the
renewed regulatory review and shareholder approvals.
• Once implemented, the transaction will provide a
solution to OZ Minerals’ current financing issues, while
the OZ shareholders will retain their exposure to the
Prominent Hill operation and its long-term growth profile.
It is so far unclear if OZ Minerals will be soliciting bids
for Prominent Hill. Around ten parties conducted due
diligence on Prominent Hill prior to the original Minmetals
transaction, however, of the parties that could be eligible
for an acquisition, only Barrick Gold and Goldfields were
considered semi-serious. BHP is also understood to have
shown passing interest in the assets, and with OZ Minerals
denying that it is entertaining any possible bidders, it looks
likely that the company will remain a listed entity with its
only asset being Prominent Hill.
Monthly M&A report – 77