Australian Companies To Look Overseas For Acquisitions - Macquarie
27 Abril 2010 - 5:27AM
Dow Jones News
A tough stance by Australia's competition regulator and a strong
Australian dollar will drive Australian companies to look offshore
for targets as takeover activity ramps up over the coming year,
according to Macquarie Equities.
Below-average gearing, strengthening cash flows, and recovering
management confidence will "almost certainly" lead to pick-up in
merger and acquisition activity, Macquarie analysts said in a
report Tuesday.
"We expect the volume of offshore M&A by Australian
companies to once again be strong over this cycle as the Australian
economy has recovered well ahead of the rest of the world,
providing a solid domestic earnings base for most companies," the
analysts said.
Australia's big four banks - Commonwealth Bank of Australia
(CBA.AU), Westpac Banking Corp. (WBK), Australia & New Zealand
Banking Group Ltd. (ANZ) and National Australia Bank Ltd. (NAB) -
are likely to look offshore for acquisitions as the regulatory
environment restricts opportunities to expand at home.
The ACCC has taken a strict stance on mergers and acquisitions
recently. In December it rejected Caltex Australia Ltd.'s (CTX.AU)
proposed A$300 million takeover of 301 Exxon Mobil Corp. (XOM)
filling stations and GUD Holdings Ltd.'s (GUD.AU) proposed A$266.8
million takeover of rival kitchen appliance supplier Breville Group
Ltd. (BRG.AU). Last week it surprised the market with its
announcement it wouldn't allow NAB's A$13.29 billion bid for AXA
Asia Pacific Holdings Ltd. (AXA.AU).
"Australian banks have been at the heart of domestic and, to a
lesser degree, regional consolidation in the banking sector over
the last two years; helped by strong balance sheets, largely
pristine asset quality and AA credit ratings," the Macquarie
analysts said.
"However, the outlook is less favourable domestically where it
appears domestic regulators are concerned about the level of
concentration in the industry. This is likely to lead to the
Australian banks searching further afield for growth, with the
banks likely to have a broad choice of targets with the continued
shakeout from the global financial crisis."
Already restricted by the government's so-called "four-pillars"
policy, some of the major banks are looking to Asian acquisitions
to drive revenue growth.
ANZ, which already has a strong focus on expanding in Asia, is
considering a bid for Dallas-based Lone Star Fund's controlling
stake in Korea Exchange Bank (004940.SE), currently valued at
US$4.1 billion as it looks to boost its presence in Asia, a person
familiar with the situation said Wednesday.
Meanwhile, Commonwealth Bank of Australia said Wednesday that it
plans to acquire a 20% stake in small lender Vietnam Investment
Bank, marking the bank's first corporate transaction in that
fast-developing Asian economy.
While NAB has said it is pursuing its options, which include
legal action, with regards to the ACCC finding, analysts have said
the bank is more likely to expand in the U.K. if it can't take over
AXA APH. NAB put in an indicative bid for 318 Royal Bank of
Scotland branches there, people familiar with the situation have
said.
Other companies with a global mergers and acquisitions focus
that are expected to be active over the coming year include BHP
Billiton Ltd. (BHP), Rio Tinto PLC (RTP), CSL Ltd. (CSL.AU), Resmed
Ltd. (RMD.AU), Sonic Healthcare Ltd. (SHL.AU), Ansell Ltd.
(ANN.AU), QBE Insurance Group (QBE.AU), Lend Lease Group (LLC.AU),
Westfield Group (WDC.AU), Oz Minerals Ltd. (OZL.AU), Sims Metal
Management Ltd. (SGM.AU), AWE Ltd. (AWE.AU), Beach Energy
Ltd.(BPT.AU), Billabong International Ltd. (BBG.AU), Worley Parsons
Ltd.(WOR.AU), Aristocrat Leisure Ltd. (ALL.AU), Iress Market
Technology Ltd. (IRE.AU) and Seek Ltd. (SEK.AU).
"Australian companies of scale which have the ability to issue
relatively cheap debt in global markets are best placed to make
offshore acquisitions, benefiting from both a strong Australian
dollar and cheap financing," the analysts said.
-By Rebecca Thurlow, Dow Jones Newswires; 61-2-8272-4679;
rebecca.thurlow@dowjones.com
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