Top Gainer: ConnectEast (CEU)
After surging 15.1% over the past two days, ConnectEast soared a further 14.6% today. But it wasn’t enough to take the top gainer’s spot, which went to struggling toll road operator and now takeover target ConnectEast (CEU). CEU shares shot up 20.0% after the toll road operator recommended a takeover proposal from Horizon Roads, a new investment vehicle managed by CP2, an Australian infrastructure investment manager which already owns 35% of the company. The takeover bid is 55 cents per share, valuing ConnectEast at $2.17 billion.
ConnectEast said that it had entered into an implementation deed with Horizon Roads under which Horizon would acquire 100 per cent of the group. CP2 managing director Syd Bone said the CP2 proposal was highly attractive for ConnectEast security holders. “ConnectEast is a good asset for patient, long-term investors,” Mr Bone said. “Following a lengthy process, we have assembled a diverse group of high-quality institutional investors to support our offer for the 65 per cent of ConnectEast not already owned or controlled by CP2-managed funds.”
ConnectEast chairman Tony Shepherd said the cash option provided certain and compelling value for ConnectEast security holders. Shepherd added that the company would be unlikely to attain a level of 55 cents per security within the next three years. “So we felt a 55 cents (per security) cash offer now was a good offer and offered greater certainty,” he told reporters.
ConnectEast said all its directors, except one, recommended the offer and would take the cash consideration in return for their own holdings. The lone director who has not recommended the offer is John Collier, who was nominated to the ConnectEast board by CP2, and who had not taken part in board consideration of the offer.
In February, ConnectEast posted a 14.4 per cent lift in first half revenue and said traffic volumes on EastLink continued to improve. The group reduced its net loss for the six months to December 31 to $2.7 million, from $43.3 million a year earlier, on revenue of $108.4 million.
With the takeover a near certainty, investors are probably wondering where to from here for ConnectEast? CP2 managing director Syd Bone says that from a customer, management and employee perspective, “the operations of EastLink will be business as usual”. Brokers aren’t so sure that business as usual is such a good thing.
Simon Bond, RBS Morgans has a hold on the stock, even though there has been an increase in daily revenue from growth of 8.3% in average daily trips down its Melbourne toll way road. Sean Conlan, Macquarie Private Wealth also has a hold on Melbourne’s EastLink tollway operator. “The focus will shift to refinancing November 2012 debt in the coming nine months,” he says. “Expect it to provide steady growth over the medium term, and once the refinancing is complete, there’s scope for a special dividend.”
Chart: Share price over the year to 22/07/2011 versus ASX200 (XJO)
Stock code: CEU
Charts: ConnectEast Limited
More news: ConnectEast Limited
Investor Centre: ConnectEast Limited
Biggest Loser: Austar (AUN)
Rupert Murdoch can’t seem to win a hand at the moment. Embroiled in the UK News of the World phone hacking scandal and one of his editors arrested, it now seems that Foxtel – the pay TV company that he holds a major stake in – will have its ambitions thwarted of buying out the competition.
With its share price propped up by the potential takeover by Foxtel, it was little wonder that Austar (AUN)’s share price plummeted on news that the competition watchdog said Foxtel’s takeover bid for the regional pay television provider could substantially lessen competition. AUN shares plunged 16.2% to be the day’s biggest loser, wiping almost one sixth of the value off AUN shares after the competition regulator said Foxtel’s takeover bid could create a “near monopoly”.
The ACCC has denied its review of the proposed acquisition of the regional pay television provider by Foxtel is related to inquiries involving News International. Rupert Murdoch’s News Corp is a major shareholder in Foxtel, along with Telstra and James Packer’s Consolidated Media Holdings.
“This has got nothing to do with anything that is occurring elsewhere or media inquiries or anything like that at all,” ACCC chairman Graeme Samuel said. “This is purely an analysis undertaken under Section 50 of the Competition and Consumer Act.”
The ACCC says its preliminary view is the takeover may lessen competition in the subscription TV market, the market for audio visual content and supply of telecommunications products. “The proposed merger would effectively create a near monopoly subscription television provider across Australia,” the ACCC said in its Statement of Issues, released on Friday.
The commission also said content would be affected because fewer subscription TV providers would directly lead to fewer content buyers. “The ACCC’s preliminary view is that the proposed acquisition is likely to substantially lessen competition in a number of telecommunications markets.”
Additionally, through its 50 per cent holding in Foxtel, Telstra would be able to take advantage of Foxtel’s position in the national pay-TV market to the detriment of competition in the telecommunications market. The takeover would allow Telstra to provide bundled services, including pay-TV, telephone and internet, which would be more difficult for rivals to provide. Market inquiries showed it was becoming increasingly important to be able to provide a bundle of services, particularly once the NBN is rolled-out.
“The ACCC’s preliminary view is that there is a real chance that the proposed acquisition will remove an important source of future competition in telecommunications markets”. The regulator said Austar was seen as a potential competitor in telecommunications markets.
The ACCC was seeking comment by August 11 and said its final decision would be deferred until September 8.
Chart: Share price over the year to 22/07/2011 versus ASX200 (XJO)
Stock code: AUN
Charts: Austar Limited
More news: Austar Limited
Investor Centre: Austar Limited
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