KEY POINTS:
Auckland Airport shares haven't had a smooth flight through the market turbulence. They are nowhere near the $3.80 value offer made by Dubai Aerospace. But they did rise yesterday - up 4c to $3.10 after news that Infratil and the NZ Super Fund had bought a 6 per
cent stake.
The market certainly wasn't reading the news as a deal-killer. And the Dubai team reckon it will help their cause, although the only way that makes sense is if they were to do a deal with Infratil. And that would surely involve re-jigging their offer - something that's been ruled out. But when did any takeover bidder ever say in advance they would alter their terms?
Infratil's Lloyd Morrison is also likely to have any other potential bidders knocking on his door. If Infratil was part of a consortium bid it might provide the Kiwi connection needed to make a foreign deal more politically palatable.
Auckland Airport says the annual meeting at which shareholders will vote on the Dubai offer will be on November 20 at Ellerslie Racecourse. Should be a doozy.
Red sheds take a hit
Up until a few days ago the NZX-50 was holding up better than many of its international peers - perhaps because it has a number of stocks which were underpinned by takeover potential.
The Warehouse, for example, is meant to stick stubbornly above the $6 mark because that is what Stephen Tindall and Pacific Equity Partners are expected to have to pay to buy it if Woolworths and Foodstuffs can't win approval in the High Court.
But even that has now come unstuck. The shares have shed 42c since August 8. They broke through the $6 barrier on Tuesday and closed yesterday at $5.83.
Some of the big hedge funds which took positions in the stock a long time ago appear to have cut their losses. Many of them are in need of cash now. So they will be looking around the world for the easiest investments to cash up.
All of this plays into the hands of potential buyers - with a few provisos. In the case of PEP it may depend on whether they can still borrow enough capital at rates that make the deal work.
Foodstuffs and Woolworths are both trade buyers so should have long horizons. They'll still be keen buyers but are at the mercy of the High Court. The court dates are set down for October but it may be early next year before we get a final decision. Certainly the completion of takeover play and payout to shareholders is still a long way off in the credit-crunchy environment.
Dairy ding-dong
As mentioned last week, Dairy Equity shareholders haven't been too happy about the state of their investment. It had been trading as low as 39c - a discount of 23 per cent on the 51c (per share) of cash the company has in the bank. Plans to buy the rights to the value-added component of Fonterra shares from farmers haven't gone as well as planned and some shareholders feel the company should wind up and give the cash back.
The company this week took a step towards placating unhappy shareholders by signalling it will stop buying any more rights from farmers while it reviews the business model. Shareholders will get a decision on the future of the business at the AGM in December. By that stage Fonterra should also have worked through any changes to its capital structure. If it decides to make it easier for farmers to cash up or trade their value-added shares, that may prove the death knell for the Dairy Equity concept. Dairy Equity shares are up 2c since last week and closed yesterday at 41c.
Yellow Pages
With the squeeze going on credit markets, debt issues are going to come under even greater scrutiny. Word is that Yellow Pages was initially seeking feedback on a rate of about 10.5 per cent for its upcoming $300 million issue of secured subordinated bonds.
That figure didn't impress some industry insiders and it now look likes the rate will be more like 11 per cent.
That all looks pretty good at first glance. But just like finance companies, the rate of return needs to be balanced by a fair level of risk.
Already there are rumblings, from those running their own numbers on the Yellow Pages, that the investment looks less palatable than putting your money in the bank - on a risk-to-return basis.
The bonds aren't expected to be rated. That's most likely because if they were, they would fall well short of what is generally considered investment grade.
At the risk of stating the obvious, mum and dad shareholders need to be aware that the Yellow Pages is not the same company it was when Telecom owned it. It sold the business for $2.24 billion to a private equity partnership of CCMP Capital Asia and Teachers' Private Capital.
It is still a great brand but it is heavily loaded with debt. Some industry experts speculate it may have a debt to ebitda ratio of 9 or 10 times. The bonds won't be the lowest-ranking debt on the Yellow Pages books but they will rank behind the banks. Investors will get the chance to make up their minds in a few weeks when a prospectus is published.
Not so healthy
There has been more than just currency issues weighing on Fisher & Paykel Healthcare's share price, writes Marcus Curley at Goldman Sachs JBWere. The US market for obstructive sleep apnoea (OSA) treatment has been coming under pressure this year with greater competition and price-cutting among the major market players.
F&P Health is one of the top three manufacturers of masks to control the disorder which obstructs the breathing of sufferers.
At its recent fourth-quarter result, rival Resmed said it had been "walking away" from potential sales to limit downward pressure on its gross margin. This, says Curley, broadly supports the forecast for "below trend OSA market revenue growth" throughout the 2008 year.
"With a continued high dollar and poor OSA industry news flow, F&P Health's share price may trade below $3.20 in the next three months," he says.
But long-term it still looks like a good investment for three reasons. Underlying growth in the sector is strong - OSA is one of the fastest-growing ailments in the US (largely because it is under-diagnosed, although the obesity epidemic is probably helping). The New Zealand dollar is expected to fall further in the long term. And F&P Health has a smart range of new products in the pipeline.
In short, any material weakness in the share price should be viewed as a good reason to buy, Curley says.
He has a 12-month price target of $3.95 on the shares but says that may prove to be conservative. If the dollar keeps falling as it did yesterday then things could certainly be looking a lot brighter.
The shares closed up 10c yesterday at $3.52, one of the only big stocks to rise.
Appliance target
Meanwhile, Fisher & Paykel Appliances shares fell yesterday. They haven't benefited this week from the fall in the dollar or the news that they are moving their electronics division overseas.
But surely the company must look more and more appetising to big international rivals such as GE and Chinese giant Haier. This column has said it before (and, like the broken clock, we'll be right eventually), F&P Appliances is on the takeover radar. While there might be a few private equity players toning down the deal-making in the current environment, big industry players with good balance sheets will be bargain- hunting. F&P Appliances shares closed down 1c yesterday at $3.50.
