ACCC, FIRB hurdles for CK Infrastructure’s bid for APA Group

The ACCC and FIRB stand as the major potential impediments to CKI’s ambitious $13bn bid for APA.

APA chief Mick McCormack. Illustration: Sturt Krygsman

The ACCC and Foreign Investment Review Board stand as the major potential impediments to CKI’s ambitious $13 billion bid for APA as the Hong Kong-based investor seeks to boost its control of regulated Australian assets.

Scottish-born CKI boss Andy Hunter will use the regulated assets as his major defence against the expected ACCC interest in the deal.

The two sides have talked for more than a week before it was unveiled yesterday on the exact same day as the 18th anniversary of APA as a listed entity in Australia.

APA chief Mick McCormack has worked for APA his entire working career from the days it was part of AGL and in the process he has built a powerful control over gas distribution in Australia, particularly on the east coast.

The Victorian and South Australian markets will attract most regulatory interest given CKI already controls two-thirds of the Victorian gas distribution market and three out of the five state electricity distributors.

The feisty McCormack has been an effective combatant against Rod Sims at the ACCC but also has the market power, which means any time he sneezes, Sims has an interest in the matter.

By contrast, CKI’s Hunter is happy with the predictability of running regulated monopoly assets. The ACCC stance has made it difficult for APA to expand its operations and in some respects is ­arguably at capacity locally, which explains why its stock price was struck in a trading range between $7.70 and $9.10 a share over the past five years. This makes the CKI bid well-timed even if the low point in the interest rate cycle boosts APA’s value.

CKI has already flagged asset sales in Western Australia, so it is clearly prepared to a deal to get the acquisition through.

FIRB is consistent in its inconsistency over recent decisions, so while blocking CKI from the NSW electricity privatisations it later cleared its Duet bid so one ­assumes APA will be cleared. That is if one can presume anything about FIRB.

The known interest from the Canadian pension managers will be the most likely competing bidder, but at $11 a share the bid is fully price at around 14 times earnings.

UniSuper is the biggest APA shareholder with 16 per cent, so its stance will clearly key to the deal.

On the face of it, McCormack appears destined to be heading home to his property in Killarney in Queensland for good, but its early days yet so his partner won’t be celebrating quite yet.

Green credentials

Macquarie’s green credentials were underlined yesterday when it became the first company to issue a green loan under the Asia Pacific Loan Market Association rules. The $875 million tranche in a £3.5bn ($6.15bn) issue will be used to fund green investments

Big media’s court win

Big media has scored a victory in its battle against Google and Facebook with a US court ruling yesterday clearing the way for AT&T’s proposed $105bn takeover of Time Warner.

It also opened the way for other potential deals, like the proposed Comcast rival bid for the assets of News Corporation’s 21st Century Fox.

The US Justice Department opposed the AT&T deal on the grounds it would give AT&T too much power in the cable television industry and threaten pricing control in the sector. AT&T argued it needed access to Time Warner content to compete more effectively with Google and Facebook.

The two control 75 per cent of US online advertising and Amazon 50 per cent of online sales.

Their reach gives the technology companies unprecedented advertising pull because they have direct access to consumer preferences and movements.

The US decision is in stark contrast with a recent New Zealand Commerce Department ruling against the merger of two newspaper groups and supports the media company arguments.

Traditional media companies argue they need to get bigger to challenge in the digital space and that old media markets have changed rapidly to include digital.

Time Warner is a media giant spanning magazines, Hollywood studios and cable television distribution and content.

AT&T is the old “Ma Bell”, the long-distance phone company that was split up in the legendary 1984 antitrust case.

The company, which owns cable distributor DirecTV, had told the court it would offer unlimited data to customers using Time Warner content.

The issue before the court, then, was whether it would have too much power in the cable industry or whether the market is wider now that it includes digital distribution. The win is a bitter blow to the US Justice Department, which may well appeal against the decision.

But in the wider debate over the increasing dominance of Google, Facebook and Amazon, it is a big victory for mainstream media companies.

Kogan’s sell-off

Last week when retailer Kogan was trading at $8.58 a share, founder Ruslan Kogan told the ASX in the wake of media reports, including in The Australian, of a personal stock sale he wasn’t selling because the price offered wasn’t good enough.

Yesterday, with the stock 11 per cent lower at $7.62, he and David Shafer sold six million shares.

Kogan wasn’t immediately available for comment. Kogan, the company, said in a statement to the market yesterday morning that Ruslan Kogan and his business partner Shafer had received an unsolicited bid for six million shares and had “reluctantly ­accepted the bid due to personal ­financial commitments”.

Meanwhile, if there was any doubt over the value in Atlas Iron, the coming statement on its cap­acity at Port Hedland puts it to rest. In recent days, both For­tescue and Gina Rinehart’s Hancock have separately taken a cornerstone stake in Atlas. This is before Chris Ellison from Mineral Resources can get his hand on the asset through the planned merger.

Atlas was yesterday placed in a trading halt “pending an announcement” from the WA government in relation to develop­ment at Port Hedland.

There is also $500m in tax ­losses at Atlas, which would come in handy for any prospective owner.

The port capacity is more channel space than an actual port facility, but any development would be attractive to Hancock and of potential long-term use by Fortescue.

Audit merry-go-round

European Union rules rightly require audit firm rotation every 20 years, which meant KMPG was dropped as BHP auditor last year, to be replaced by E&Y.

Yesterday Rio picked up KPMG as its auditor, replacing long-time auditor PwC.

Audit firm rotation should be enforced in Australia but so far despite support from former ASIC boss Greg Medcraft the rules are yet to change.

Kane’s thinking time

The $US7bn weekend takeover bid by Knauf for US Gypsum has given Boral’s Mike Kane some thinking to do given he has a change of control clause in the Asian joint venture.

The business is a runaway success, growing at 30 per cent a year with earnings last financial year of $110m, or roughly a quarter of total group earnings.

A buyout of the joint venture would cost around the $US1.2bn mark for the 50 per cent Boral doesn’t own, but another alternative would be to get Knauf to roll its Asian assets into the joint venture and run with the flow.

Its early days yet, but one assumes Kane will want to keep the asset. The question is just how much of it he wants given the benefits he saw in tying up with USG.

The company, 31 per cent-owned by Warren Buffett, was also Kane’s training ground, where he spent some 25 years in the place, both in the US and Asia.