Apn Is Drifting Down The Stream

Sydney Morning Herald

Thursday August 9, 2007

Edited by Danny John xchange@smh.com.au

Shareholders refused $6.20 a share and now the media group is battling to get to $6.

APN News & Media shareholders might be in for a bit more disappointment. With the newspaper and radio company reporting earnings next week, Macquarie Bank has run the ruler over what's in store for APN after the failed takeover bid by the major shareholder, Independent News & Media, and private equity.

The stock has been heading south since Perpetual and other institutional investors blocked Irish billionaire Tony O'Reilly's $6.20-a-share bid in May. It closed 10c down at $5.75 yesterday and, over the last few weeks, hasn't been within cooey of $6.

So, where to from here? Macquarie analyst Alex Pollak sees various possible scenarios:l Independent News comes back with a higher offer. That would be surprising, considering its chief operating officer, Gavin O'Reilly, virtually ruled out another bid last month.

l A new bidder emerges. Unlikely, given Independent News has a 40.7 per cent stake in APN and could scuttle any deal.

l APN's boss, Brendan Hopkins, emulates James Packer and Kerry Stokes, selling half of the media business (or more) to private equity. Very unlikely, because it would turn APN into a mere shell company.

So, combined with the recent credit crunch, which makes life harder for takeover practitioners, Mr Pollak sees "only a small chance of any corporate activity, given the current state of the debt market."

Which leaves investors with sobering prospects: Nothing changes, and the shares continue to drop.

Macquarie rates the stock underperforming, predicting it could fall back to about $5.20.

Asia calling

With the John McFarlane era at ANZ Bank rapidly drawing to a close, the market's attention is switching to his soon-to-be-installed successor as chief executive, Michael Smith, and in particular what plans he has for the group's Asian expansion.

The overlap in Smith's experience at his old firm, HSBC, and ANZ's own drive into the region is remarkably similar, both having targeted Thailand, India and Vietnam as areas where they could, in time, build significant businesses.

Smith will be helped in his new employer's bid to grow earnings from Asia from the current 4 per cent level to an eventual 15 per cent by McFarlane's last major recruit to the company, Alex Thursby, who has been snapped up from Standard Chartered to head a revamped Asia Pacific division.

Opportunities to create a fully fledged retail bank business in India (where ANZ once had Grindlays) are limited by foreign ownership restrictions, although the research firm UBS reckons a joint venture credit card operation is more than possible since that would fall outside such rules.

Of the 14 Asian countries in which ANZ has a presence, Smith and Thursby may well fancy their chances in the Philippines, where the ownership regulations are a lot more relaxed, Vietnam, where the bank has just taken 10 per cent stakes in a bank and a stockbroking business, and Thailand, which offers good opportunities for a local partnership.

As new boys, there may be a temptation for the duo to wait a while before announcing their first step.

However, they have the benefit that ANZ is not new to the Asian game and their own backgrounds suggest that the next move in the strategy will be made sooner rather than later.

Being railroaded

The bankers financing the $8 billion project to build trains for Sydney's commuters are no doubt getting a bit nervous about the revolving door at both the engineering company Downer EDI and its train-building consortium, Reliance Rail.

Market murmurs yesterday said they called a "please explain" meeting with Reliance executives after its chief executive, John Hopman, was unceremoniously dumped.

Hopman had only been in the top job for six months and, while no reason was given for his replacement, the chairman referred to his lack of experience in rail - perhaps a prerequisite for a job which is doing nothing but building train carriages.

It came after Downer EDI lost its managing director, Stephen Gillies, amid a profit downgrade and concerns at the company's ability to deliver on time and on budget.

The bankers include ABN Amro, Westpac, National Australia Bank, Mizuho, Sumitomo Mitsui and Citibank.

Strangely enough, Reliance Rail's project director, Greg Pauline, has had nothing to say about the state of the contract, nor has the deputy project director, and Babcock & Brown executive, Macolm Macintyre, nor ABN Amro's structured finance boffin, John Martin.

Miners impress

It can be tough to impress many of the hangover-plagued delegates at the Diggers and Dealers mining conference in Kalgoorlie but a few of the presenters have managed to do it.

In an informal poll of a few brokers, analysts and industry veterans, some names popped up again and again when it came to the most impressive under-the-radar stocks.

The Finnish base metals hopeful Vulcan Resources impressed analysts from at least two major investment banks. Merrill Lynch's Andrew Richards even told his clients it was like "Kalgoorlie in the snow", noting Vulcan had a $100 million market value and $55 million in the bank after completing a $52 million fund-raising program earlier this week.

Among the smaller gold stocks, the South American producer Mundo Minerals and WA's Avoca Resources and Monarch Gold received the thumbs-up from delegates. As one veteran noted, based on its earnings and dividend projections, Michael Kiernan's Monarch could have a 10 per cent dividend payout ratio.

Opinions are a bit more divided on WA's Apex Minerals. But believers in the company's strategy of consolidating the more difficult-to-treat refractory gold deposits reckon the former LionOre Australia boss Mark Ashley will once again fulfil his promises.

Japanese are back

They're back. Yes, after two decades of shying away from the Australian property market, cashed-up Japanese investors are returning.

This time it will be in a more controlled format, that is, through properly managed funds. The latest to hit our market is a joint venture between the Japan-based KK daVinci Advisors and the Aussie fund manager and property developer Quantum Group, run by Peter Gribble.

The plan is to launch an unlisted property fund of Australian office and retail assets, worth about $350 million, aimed at Japanese investors, followed up by a $1 billion wholesale opportunistic fund with properties on the eastern seaboard.

Taylor Bennett, co-chief investment officer from daVinci, says his group has about $10 billion in funds under management with a slab earmarked to invest in the Australian market burning a hole in his pocket.