Australia Fell on Bear Stearns Fire Sale

123jump.com Staff
17 Mar, 2008
New York City

Australian stocks fell after markets in Asia fell on the more troubling news from the U.S. financial markets. Bear Stearns, the fifth largest investment broker was sold 90% below its Friday closing price to JP Morgan. The fire sale of the bankers ar $2 per share sent shock waves around the world as investors turned cautious. ASX 200 index shed 2.3% or 119.9 to close at 5,087. Babcock Brown Power dropped 10% as investors worried that the company may not be able to refinance its debt.

[R]3:00AM New York, 7:00PM Sydney - ASX 200 index lost 2.3% after financial stocks declined.[/R]

Market Sentiments

ASX 200 index shed 2.3% or 119.9 to close at 5,087 as stock indexes in Asia fell. The fire sale of Bear Stearns at 90% below its Friday close price to JP Morgan shook investors around the world. Only a week ago the fifth the largest U.S. investment banker was valued at $4 billion.

The preliminary market turnover was 1.27 billion worth $5.07 billion, with 644 stocks moving up, 521 moving down and 340 unchanged.

Market Driver

Australia''s biggest publicly traded power producer, Babcock & Brown Power''s share fell 10 %. The decline came on the back of investor concerns about its ability to refinance debt and fund expansion. The stock has plunged 46% in the past six months.

Babcock Power last month indicated that it was ``well advanced'''' in refinancing $3.1 billion of debt, boosted by investments and acquisitions that increased the size of its generation portfolio by 70% since December 2006 initial share sale.

Babcock Infrastructure, which also fell, indicated that it had spent $15 billion in acquiring new assets.

Gainers and losers

Of the ASX 200 index stocks, Sino Gold Mining led the gainers with a rise of 5.7% followed by increases in Envestra Ltd of 5%, in Oil Search Ltd of 4.9%, in Gwa Intl Ltd of 4.7%, and in Lihir gold Ltd of 4.6%.

Of the ASX 200 index stocks, Allco Finance Group led the decliners with a fall of 17.4% followed by losses in Macquarie Office of 12.4%, in City Pacific Ltd of 11%, in Dexus Property Ltd of 11% and in ING Office Fund of 10.5%.

Bumi bid in Limbo as Herald shifts support to rival bid

Indonesia''s largest coal miner PT Bumi Resources takeover bid for zinc miner Herald Resources Ltd was left in limbo today after Herald backed a rival $505 million offer by Indonesian state-controlled mining group PT Antam and Chinese government-backed miner Shenzhen Zhongjin Lingnan Nonfemet Co. Ltd.

Herald today withdrew its recommendation for the $2.25-a-share Bumi bid and instead recommended the $2.50-a-share offer by Tango Mining Pte Ltd.

Tango is the Singapore-based bidding vehicle for Indonesian state-controlled mining group PT Antam Tbk and Chinese government-backed miner Shenzhen Zhongjin Lingnan Nonfemet Co. Ltd. The Tango offer is subject to a minimum acceptance of 50.1% and Foreign Investment Review Board approval.

Bumi today announced that it was yet to conclude on debt funding to partially finance its $444.8 million takeover bid for Herald Resources Ltd and expected to be completed by March 15.

Bumi has extended the date by which the debt facility must be executed to April 4, the expiry date of its offer, and is likely to have a debt through Credit Suisse of US$375 million. Herald Resources shares have been trading above the offer price and were one cent higher at $2.65.

Bumi and Tango are keen to gain control of Herald''s US$220 million ($237.61 million) zinc-lead Dairi project in north Sumatra, which is 20 per cent held by Antam. Herald has been waiting more than two years for the necessary environmental approvals to commence underground mining at Dairi.

Sims Group and Metal Management concludes merger

Sims Group Ltd boss Jeremy Sutcliffe today stepped down from his post at the world''s largest scrap metal recycler after it sealed a $1.71 billion merger with US-based Metal Management Inc.

Sutcliffe would however retain his post as an executive director of the company and chairman of the group''s European and Australian metals recycling businesses and Sims Recycling Solutions business globally, until October 2009. He was appointed chief executive six years ago.

He would be replaced by Metal Management chief executive Daniel Dienst who would head the merged entity and chair the combined North American metals recycling business. The merger creates an entity with more than 200 global operations and annual revenue of $8.5 billion.

The merger was approved by Metal Management shareholders at a special meeting on Friday while Sims shareholders will vote on a change in the company''s name to Sims Metal Management Ltd at an annual general meeting in November.

Sims would issue Metal Management stockholders with 2.05 New York stock exchange-listed American Depositary Receipts (ADRs) for each Metal Management share, to satisfy the transaction. Each ADR represents one Sims ordinary share.

In the meantime the merged company will trade in North America under the name Sims Metal Management. Sims Metal Management would remain domiciled in Australia and retain its ASX listing, in addition to the New York Stock Exchange listing of its ADRs.

Sims shares lost 6%.

Baggage staff strike delays Qantas flights

At least 10 Qantas flights were delayed after the airline''s baggage handlers went on strike over safety concerns at Sydney Airport today.

The international terminal workers met for about 90 minutes from 11:30am, before returning to work and Qantas retained their pay by four hours, which the company says was standard practice under WorkChoices legislation.

Qantas denied a claim by a passenger that at least one flight left without baggage on board. In a statement, the Transport Workers Union TWU secretary Tony Sheldon said the baggage handlers are frustrated with understaffing, rostering concerns and old and badly maintained equipment. Sheldon said the airline''s response has so far been inadequate.

He said Qantas had five months to address the serious safety issues, but it appeared to ignore the problems. The TWU said surveys conducted within Qantas at Sydney Airport showed nearly one in three employees suffered injuries while at work last year, including torn discs in the neck, a broken foot and neck and shoulder strains.

It said the surveys found one in seven workers had to take time off work as a result of their injuries. Qantas says the industrial action was unauthorized. The Industrial Relations Commission has convened a meeting today to discuss the dispute.

Zinifex gets 45% of Allegiance stocks

The miner Zinifex has almost completed its takeover of Allegiance Mining. According to the latest update from the Stock Exchange Zinifex has purchased 45% of Allegiance shares, up from 37% on Friday. Zinifex''s final offer of $1.10 per share closes on Thursday, having been extended three times.

West Australian Newspaper warns shareholders against Seven''s proposal

West Australian Newspaper Holdings Ltd today advised its shareholders against voting Seven Network Ltd head Kerry Stokes onto the company''s board.

WAN said voting for Stokes would be tantamount to them throwing away hundreds of thousands of dollars. Seven Network Ltd head Kerry Stokes plans to seek shareholder approval for his appointment during the overhaul of the WAN overhaul of its board by releasing an explanatory memorandum claiming the media mogul would wrest control of the company if given a seat.

""As far as the non-executive directors are concerned his personality, his experience, his influence and his voting power makes it inevitable that he will assume effective control either immediately or over time,"" WAN chairman Peter Mansell said.

Mansell said that Stokes'' attack on WAN bore a strong resemblance to how he took control of Seven without paying a control premium.

""Anyone who knows the history of Seven Network will appreciate that the action Mr Stokes is now taking in relation to WAN bears a strong resemblance to the early stages of the process by which Stokes took control of Seven Network without paying a control premium,"" he said.

Mansell said the issue of control was important as the ability of shareholders to ""sell"" control of WAN to a bidder has value and based on market precedent, that value is potentially hundreds of millions of dollars.

""As an example, if you applied a typical 30% control premium to WAN''s current market value that control is worth in the order of $3 to $3.50 per share. Whether or not WAN shareholders will benefit from the value of control is also very important in the context of Stokes'' history with Seven Network,"" he said.

WAN shareholders would decide on the Seven''s request to remove all four of the publisher''s non-executive directors, including Mansell through a vote in April 23.

With a 19.4% stake in WAN, Seven also wants its non-executive director Peter Gammell to join Stokes on the board.

""Two seats on a five person independent board does not constitute control,"" it said in a statement to the Australian stock exchange.

Seven also rejected claims by WAN that potential for conflicts of interest would arise if Seven had directors on WAN''s board. It claimed that the two companies did not compete because one sells newspapers and other broadcasts television programs.

WAN reduced its interim dividend by 30% last month after it reported a 21% dip in first half profit.

WAN shares closed down 2.9% and Seven stock lost 1.3%.