14/01/2009 - 22:00

Top business deals under review

14/01/2009 - 22:00


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The importance of building value has been highlighted by the financial crisis.

Top business deals under review

RESEARCHING our annual Deal of the Year feature has prompted a rethink of the dealmakers who won accolades in prior years, and of those who genuinely added value during the resources boom.

One of the defining characteristics of 2008 was the small number of major corporate deals, after four years of frenetic deal making during the boom.

Large and often complex takeovers and a stream of share market floats kept stockbrokers, lawyers, accountants and many other professionals busy during the boom. Now, they need to look harder for their next transaction.

More significantly, some of the transactions that looked impressive during the boom years no longer appear so positive.

On reflection, the biggest accolades should go to those who built valuable businesses rather than those who engineered clever financial transactions. Of course, some very prominent Western Australian businesses, most notably Alinta, did both.

Accolades should also go to those who were able to sell their business for cash at or near the top of the market.

Kerry Harmanis and his fellow directors at nickel miner Jubilee Mines head the latter grouping. After spending more than a decade building Jubilee into a highly profitable mining company, they put emotion aside and readily accepted a bumper $3.1 billion takeover offer.

Consolidated Minerals and Midwest Corporation are other mining companies that were sold near the peak, after they were the subject of aggressive bidding wars.

The successful bidders - Swiss company Xstrata, Ukrainian group Palmary Enterprises, and China's Sinosteel - now face a tough task extracting value from their Australian assets.

Accolades should also go to the business owners who were astute enough to float their companies when the market was running hot.

People like NRW Holdings co-founder Jeff McGlinn, who reaped a big cash reward when the contractor completed a $303 million initial public offering early last year.

Southern Cross Electrical Engineering and civil contractor Brierty also raised cash by floating near the top of the market. In these cases, the vendors have seen the value of their residual stake plunge in value, in line with the overall market and, in Brierty's case, because of poor financial performance.

The vendors who completed trade sales for cash may have been even smarter, or perhaps just luckier.

Included here are Kingston Bridge Engineering, which sold for $100 million cash, TCC Group, also sold for up to $100 million, and assay laboratories Ultra Trace (about $80 million) and Genalysis Laboratory Services (up to $56 million).

The transactions that WA Business News judged to be the top corporate deals of 2007 warrant a review in light of the changed market conditions.

The top-rated deals were Wesfarmers' $20 billion acquisition of Coles, Babcock & Brown's $12 billion purchase of Alinta, and Woodside's go-ahead for the $12 billion Pluto liquefied natural gas (LNG) project.

The Coles and Alinta transactions signalled the high point of the boom - highly leveraged, complex in their structure and keenly contested.

The jury is still out on the Coles deal, which has left Wesfarmers with an uncomfortably large debt load and an enormous operational challenge to lift Coles' performance.

The market has been a lot harsher in its judgment of Babcock, which is struggling to survive. Babcock was a product of the boom, using aggressive financial engineering and mountains of debt to create a major business in WA and elsewhere.

We shouldn't forget that it secured control of Alinta only after outgunning Macquarie Bank, one of Australia's most highly regarded businesses. However, that was a year ago. Since then, many of the senior executives who led Babcock's rise have left the struggling group.

Woodside's commitment to its wholly owned Pluto LNG project was seen as a gutsy move. It progressed from discovery to formal go-ahead in record time, is the largest resources project under way in Australia and will have a transformational effect on Woodside, which has taken Wesfarmers' mantle as the state's number one blue chip stock.

Fortescue Metals Group and Paladin Resources warrant special mention for what they achieved during the boom. While many other companies talked about their growth plans, FMG and Paladin delivered.

FMG defied the odds to fund and complete its Pilbara iron ore project, while Paladin is well established as a uranium miner, with its first mine in production, a second under development and a suite of growth projects on its books.


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