The Future Is Knocking On Australia’s Door

Merlon Capital’s Mr Carlisle said the separation of Suncorp’s bank from the insurance business would be no mean feat, pointing to operational challenges and credit rating outcomes.

‘Not a financial stretch’

“Acquisition by a regional bank or another institution with a lower credit rating than Suncorp would likely result in a reduction in earnings power,” Mr Carlisle said.

Evans and Partners analyst Matthew Wilson accepted that a regional bank would have difficulty making the acquisition of Suncorp’s bank work. The prospect of ANZ lobbing a bid was “not a financial stretch”, however.

“It has the lowest major bank Queensland home loan market share, it had surprisingly and supposedly expressed an interest in ME Bank,” Mr Wilson said.

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Meanwhile, fund manager Challenger is being stalked by Apollo Global Management and Athene Holdings; ClearView Wealth is doing a strategic review; and Westpac is still trying to spin off wealth group BT Panorama.

In consumer goods, the share price of infant formula group the a2 Milk Company has been savaged in the past 16 months after four successive profit downgrades because of COVID-19 disruptions and a shift in policy in China, where the government wants Chinese players to make up 60 per cent of consumption within three years.

A2 Milk shares were above $19 in August 2020, but had a brief spike two months ago on talk that Swiss multinational Nestle might be circling.

Australia’s largest wine company, Treasury Wine Estates, is also being watched closely as a recovery play as the hospitality industry opens up and it shifts away from a reliance on the China market after the imposition of hefty tariffs by the Chinese government on the entire Australian wine industry.

Treasury undertook an internal split from July 1 and is now running its flagship brand Penfolds as a separate unit, with the Penfolds business the prize in any tilt by private equity players.

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Private equity groups have signalled interest in healthcare groups such as Healius and Sonic Health, which is positioning itself as the top contender to conduct the COVID-19 testing for an eventual “vaccine passport” if there is a government tender process.

Companies in other sectors that have previously received private equity bids such as G8 Education or Tasmanian fishing group Tassal are considered ongoing targets.

Gaming groups such as Crown Resorts, which is trying to repair its reputation after being lambasted in royal commissions, and Tabcorp, which rejected bids for its bookmaking arm, are also vulnerable.

Obvious candidates for consolidation

In the media sector, the 2017 reforms did not lead to a flurry of M&A activity many bankers hoped for, with Nine-Fairfax the only deal to go through.

But after a tough 18 months through the pandemic, with many shoring up balance sheets and preparing for M&A, there are obvious candidates to spark industry consolidation.

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Kerry Stokes’ Seven West Media has long been rumoured with a tie-up with News Corp. While News has publicly stated it has no interest in free-to-air TV, Seven chief executive James Warburton has continued to pump up his company’s chances of being a “hunter” in industry mergers and acquisitions, even after Bruce Gordon and Antony Catalano nixed his attempts to merge with regional affiliate Prime Media.

Here, There & Everywhere, chaired by Hamish McLennan, is another media player which may look to bulk up. The radio business has cash on its balance sheet, and a small stake on outdoor advertising business oOh!media.

However, HT&E has the added complexity of being nearly 15 per cent owned by News Corp – News Corp can’t buy HT&E because of Lachlan Murdoch’s ownership of Nova Entertainment.

In energy, much of the sector has already embarked on mergers, with Woodside Petroleum, BHP, Santos and Oil Search all involved in deals. This week the M&A action moved down to the smaller end, with Korea’s Posco making a $845 million tilt for Senex Energy.

But Credit Suisse analyst Saul Kavonic sees ample scope for more to come, despite difficulties in the form of differing views on valuation, management personality clashes and slow parochial decision-making processes at some larger players.

The case for synergies

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”Consolidation in the Perth Basin and broader Western Australian gas market is on the cards as domestic gas prices continue to rise and line of sight to more export avenues are becoming apparent,” he said.

Mr Kavonic pointed to the case for synergies between Perth Basin players such as Beach Energy, Mitsui, Strike Energy, Warrego Energy, Norwest Resources and Mineral Resources, alongside likely reshuffles of interests in individual assets.

He also expects several asset deals once mergers have taken place as enlarged companies rationalise their portfolios.

Others point to Western Australian explorer Carnarvon Petroleum as a potential takeover target, mostly due to its 20 per cent stake in Santos’ $US2 billion Dorado oil project in WA, while on the east coast Cooper Energy may attract interest for its east coast gas presence.

In mining, tensions are high across the Western Australian nickel mining industry, where several players are trying to consolidate a sector that has returned to prominence on the back of expectations that battery manufacturers will need much more of metal as demand for electric vehicles rises.

Miner Western Areas could be the first domino to fall as merger talks with IGO Limited stretch into a third month. Fortescue Metals chairman Andrew Forrest seems determined to have a say on that deal after his private company Wyloo took a substantial stake in Western Areas in August.

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Wyloo also has substantial stakes in two nearby nickel aspirants in WA’s Yilgarn Craton district; Mincor and Poseidon Nickel.

Just to make things more complicated, IGO owns about 8 per cent of Mincor and Western Areas owns almost 20 per cent of Kimberley nickel aspirant Panoramic Resources.

The elephant in the WA nickel room is BHP, which has commercial relationships with Mincor, IGO and Western Areas to process those companies’ material through BHP’s concentrators, smelters and refineries.

That makes BHP arguably the natural owner of the entire Yilgarn nickel province, and the multinational miner has been clear about its desire for more nickel. Only one thing is sure; the WA nickel sector will likely look very different several years from now.

In infrastructure, which has been busy with big bids like the $23.6 billion indicative offer for Sydney Airport from a consortium led by IFM Investors, engineering group Cardno has received unsolicited approaches. Qube Logistics, Downer EDI, building materials group Boral and construction group Adelaide Brighton are also considered potential targets.

With Anthony Macdonald and Jenny Wiggins

Source : https://www.afr.com/companies/financial-services/the-companies-on-the-block-in-australia-s-m-and-a-boom-20211019-p591ae

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