Dealmakers confident of strong 2010

Biggest deals

THE accepted word on St Georges Terrace is that there was just one scene-changing deal in 2009 for corporate finance specialists – and even that deal is yet to be consummated.

Against an uncertain economic backdrop, mergers and acquisitions were rare occurrences during the past 12 months, leaving the finance district to rely on a flurry of capital raisings to earn their keep.

Yet the testing conditions led to several gritty, 11th-hour deals that needed to be finalised in order to save companies (and in one case an entire township, Ravensthorpe).

Unanimously, investment advisers and brokers told WA Business News that corporate activity had rebounded in the latter part of the year and that they expected a profitable 2010.

“We’re busy on stuff that’s going to come in the first quarter of the year unless a major shock to the system occurs,” one investment adviser said. “I’d expect competitors to be equally busy; there’s a lot of talk about upcoming deals.”

In 2009, the scene changer was the proposed $140 billion iron ore joint venture between mining giants BHP Billiton and Rio Tinto, which progressed to a binding agreement late last year.

But, facing opposition from several fronts, the proposal is far from a done deal.

Overseas steel industries are concerned by the prospect of monopolised-style price rises, while there are also local and offshore competition agency hurdles to overcome.

The mining giants, which expect the merger to result in $US10 billion in synergies, also face opposition from the state government, which has warned it is seeking higher royalty payments.

Shareholders of the two companies are likely to be the biggest winners of the deal, although there have been suggestions the merger favours BHP investors over Rio shareholders.

Negotiations in the first half of 2010 will provide some clarity as to who are the real winners and losers.

The tie-up followed the collapse of an investment deal between Rio and Chinese government-owned Chinalco, which followed a takeover attempt by BHP for Rio.

While the proposed merger of Pilbara assets is clearly the biggest M&A play of the past 12 months for the state, negotiations were largely conducted outside of Western Australia.

“Most of the deals were asset deals, there’s been bugger all local M&A,” one investment adviser said.

By casting the net beyond the corporate finance sector, several other agreements were made over the course of the year with significant importance to the state.

Most notably, the approved development of the massive $43 billion Gorgon liquefied natural gas project on Barrow Island was a boon for all manner of sectors in WA.

The signing of the state development agreement for the $4 billion Oakajee deepwater port and rail project was another major development, providing the infrastructure to unlock the iron ore potential of the Mid West.

On an individual front, few could claim to have had as good a year commercially as Mineral Resources founder Chris Ellison. MinRes was involved in multiple deals and enjoyed a rocketing share price, at the same time as Mr Ellison created headlines by purchasing a mansion in Mosman Park with a record price tag (see story, page 17).

Local industrialist Gordon Martin may have missed out on securing a deal to take over the timber schemes of the collapsed Great Southern, but the Coogee Chemicals founder unwittingly made a great transaction by offloading Coogee Resources to Thai petroleum company PTT Exploration and Production Public Company.

Mr Martin’s hand was forced when the faltering major shareholder Babcock & Brown decided to offload its 35 per cent interest after a failed attempt to float Coogee Resources.

Several months later, the former major asset of Coogee Resources – the Montara oil field operations – came to national prominence due to a major oil spill in the Timor Sea, costing the company an estimated $170 million.

PTTEP was left to answer the difficult questions.