Dealmakers found 2008 challenging amid the turmoil of crashing markets
"AND the winner of the 2008 WA Business News Deal of the Year is (drumroll) .... Kerry Harmanis' sale of Jubilee Mines to Xstrata. Hang on, there's been a mix up, we appear to have last year's envelope."
It is truly a sign of the times when the investment community thinks the best deal of 2008 actually occurred in the previous year. Almost unanimously, bankers and brokers who spoke to WA Business News offered the Jubilee sale as a great deal for its shareholders, notably its biggest stakeholder Mr Harmanis.
While most of those who proffered the deal did so tentatively, themselves questioning the timing (it was actually announced in October 2007), the very naming of a deal near the stock market peak of late 2007 clearly shows the paucity of talent available for consideration in 2008.
To rub salt into the wounds of 2008's few dealmakers, the Jubilee sale did not even top our list for 2007, featuring sixth behind deals that have since left investors cold - such as Wesfarmers' takeover of Coles and Babcock & Brown's takeover of Alinta.
But that was last year, when most deals looked like win-win for everyone involved. In 2008, it is clear things have changed. The investment community now truly admires anyone who timed their deal ahead of the downturn or managed to escape from gaol in what became a very messy year.
Almost all of the deals listed occurred under the pall of the global credit crunch - some in its early phases when the markets had slowed - and the flow has slowed dramatically, while others took place from September on as the meltdown accelerated unexpectedly.
"Every deal that everyone's done has been hard work," one investment adviser told WA Business News.
The top deal, that of Commonwealth Bank of Australia's opportunistic acquisition of BankWest, straddled these two distinct periods of 2008 and is a clear case of there being a winner and a loser.
CBA paid $2.1 billion for BankWest, acquiring in October a healthy Australian business at a time when its owner, UK giant HBOS had been brought to its knees and forced into a fire sale of offshore assets.
Advisers believe it was CBA's willingness to act quickly that got it the deal, especially given the rumour mill suggests that the Bank of England wanted a quick result as it tried to save HBOS from collapse by engineering a merger with Lloyds TSB.
"CBA was more sprightly than the other banks," one adviser said.
While the CBA's purchase was a clear-cut winner, it stands alone from most of the other M&A activity for being rather removed from the state - with the buyer being Sydney-based and the seller in the UK. It's very hard to put a local face to the deal.
In contrast, the personal efforts of Gindalbie Metals chairman George Jones were seen as critical to market observers and participants who nominated the November placement with Chinese giant AnSteel as the next best deal of 2008.
In November, at the very height of the credit crunch, Gindalbie agreed to a $162.1 million share placement arrangement with AnSteel, which will take its Chinese partner from 12 per cent to 36 per cent. The capital allows Gindalbie to meet its financial obligations towards its Karara joint venture with AnSteel. The Chinese company has also agreed to make its final equity contribution of $143.7 million.
The deal, at a big premium to the share price at the time, leaves Gindalbie as the strongest of the Mid West miners at a very difficult time for this iron ore province. The company will be debt-free and its project well financed.
However, the caveat for those who nominated the deal was that shareholders had yet to ratify it.
"That was a rabbit out of the hat in the context of the market," one corporate adviser said.
"AnSteel had a lot already invested as well as contracted obligations to provide loans. George did well to get them there, it was a strong negotiating position," said another.
While Mr Jones acknowledges the deal price was lower than he'd anticipated previously, he's still pleased with the outcome under the conditions - leaving Gindalbie with a strong partner that has a stake in its success.
And despite some criticism about being forced to sell out to the Chinese, the Gindalbie chairman is adamant the recent placement was a strong result for shareholders based on the conditions imposed in the original joint venture deal and subsequent placement in 2007.
"One of the advantages of being around through the cycles before is I did not think it would go up forever," Mr Jones said.
"The (original) deal was structured to accommodate changes."
Another story with a strong local face is that of Iluka Resources, whose CEO David Robb executed a $353 million equity and $500 million debt raising in March. At the time there was some criticism of the 4-for-7 accelerated renounceable entitlement offer, which was made at $2.55 per new share, a 30 per cent discount to closing price and 22 per cent discount to theoretical ex-entitlements price.
Iluka is currently trading near $5 a share, a rare result in the current conditions, having outperformed the S&P 200 by a significant degree, including Mr Robb's former employer, Wesfarmers.
Under the debt deal, apart from a working capital facility of $55 million, the remainder of the debt has a five-year maturity term, with a requirement for the reduction in the facilities by $100 million on the fourth anniversary of the drawdown.
"It was impeccable timing. It was well orchestrated and well implemented. David was criticised at the time," one adviser said.
The next two deals on the list have a hint of similarity about them, given they were heavily contested takeovers, with Herald Resources being the subject of two suitors.
Generally advisers thought that Herald shareholders were the big winners from PT Bumi Resources' acquisition. The bidding started at $455 million late in 2007 and ended up at $576 million by July. In the interim, the Tango consortium had entered the fray, earned a $5 million break fee and sold out to Bumi at the final price.
"Some deals look great with the benefit of hindsight," said one observer.
"Herald is a bit like that, I think; they kept all the bidders at the table during a downturn in the zinc price."
The original shareholders in Midwest Corporation were also major winners when China's Sinosteel won over key shareholders from Malaysia, led by director David Law, with its $6.38/share bid in September, having started at $5.50 in May.
"The Malaysians, in terms of Midwest, undoubtedly sold out at the peak," an investment banker said.