INSIDER
The Age
Monday November 23, 2009
QBE sets sights on shopping expedition in strained EuropeDESPITE recent speculation of a renewed hostile bid, IAG has not been busy reactivating its defence plans in anticipation of a renewed hostile offer from QBE. And now it's easy to see why.Not only do the numbers not stack up at the moment, but QBE is focused on a once-in-a-lifetime chance to buy prime European insurance assets that regulators are forcing financial services groups to divest.In an interview with CNBC on Friday, QBE chief financial officer Neil Drabsch said there was a lot of strain in the European sector, which meant assets not usually available would come on to the market.In recent weeks, European regulators have announced Britain's RBS and Lloyds, Belgium's KBC and ING of the Netherlands will be forced to divest their insurance arms, meaning plenty of opportunities.QBE was outbid in August for Fortis' insurance business by British rival Amlin, which paid $600 million for the division.In the meantime, Drabsch told CNBC the economics of a bid for IAG did not currently make sense, with earnings per share accretion modest at any premium. What his response did appear to demonstrate is that QBE keeps a constant tab on the potential tie-up and will be well aware when the numbers do stack up.Macquarie Equities said even a nil-premium bid would dilute earnings by 2 per cent a share and return on equity by 25 per cent at this point. And in keeping with QBE's European expansion plans, Macquarie thinks the high Australian dollar and cheaper overseas asset prices means offshore acquisitions look like the best opportunity.Confidence raisingA NEW wave of equity raisings for merger and acquisition activity is starting to emerge as corporate confidence improves. Earlier this month, Amalgamated Holdings raised $107 million to fund bolt-on acquisitions, and on Friday Sims Metal Management followed suit with a $400 million placement to institutions plus a $75 million share purchase plan.That the Sims raising will be put towards buying more scrap metal and metals recycling businesses rather than fixing its balance sheet meant it could persuade underwriters and investors to support an issue at only a 5.4 per cent discount to the last trading price.Sims will now have about $150 million of net cash on its balance sheet and $1 billion or so in untapped credit facilities. It is expected to target mostly privately owned businesses in the US, some of which are small but others could be worth a few hundred million dollars.Sims chose to conduct the raising as a placement rather than a rights issue because about 20 per cent of its register trades via American Depository Receipts in the US. Under a rights issue structure, that portion of the register would have had to renounce its rights, whereas the placement was largely filled by existing institutional shareholders from Australia and the US.Mitsui, which owned 20 per cent of Sims before the placement, chose not to participate. It is said the primary reason was that the Japanese group is not a fast-moving organisation and it did not have time to seek the needed internal approvals.UBS was the lead manager and book runner for the raising, but CommSec served as a co-underwriter and co-manager. Commonwealth Bank is a lender to Sims. CommSec has not been shy about trying to leverage the bank's lending relationships into advisory roles.Focus on fundingINVESTORS will be even more focused on Woodside Petroleum's funding plans on a site visit to the North-West Shelf and Pluto today and an annual briefing tomorrow after it announced a $672 million to $1.1 billion blow-out in the costs of the first production train at Pluto on Friday.Woodside has stuck to tapping the US bond market for funding rather than seeking new equity to fund growth, but even before the news of the cost increase, JP Morgan thought investors might need to factor in an equity raising late next year and underwrote dividend reinvestment plans.Standard & Poor's has put Woodside's A- rating on negative watch as a result of the cost increase and expects to determine within a fortnight whether it will downgrade the rating.Moody's already rates it the equivalent of BBB+.On Friday, Woodside chief executive Don Voelte said the cost increase might lead it to raise more debt, but added it did not seem necessary to raise equity at this point.That does not rule out a raising in the second half next year, nor does it rule out plans for the sale of non-core assets, such as exploration acreage in Sierra Leone, Brazil, and Libya, which JP Morgan said could bring in hundreds of millions.jfreed@fairfaxmedia.com.au
© 2009 The Age
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