Merger Monday channels old economy vibes

Brookfield

Tue 02:38

The author is a Reuters Breakingviews columnist.  The opinions expressed are his own.
By Antony Currie
MELBOURNE, Oct 20 (Reuters Breakingviews) - What are investment bankers to do after the high-profile flop of the IPO billed as Australia's biggest this millennium? With egg still fresh on their faces from the implosion of AI neocloud Firmus Technologies' $5.5 billion aborted debut, dealmakers kicked off Monday with five new or updated chunky takeovers. Old economy vibes remain the fee pool's bread and butter as tech and geopolitical turmoil roil global markets.
Chief among them is a bid from Daiichi Life's 8750.T Australia unit, TAL Daiichi Life Australia Pty, for the 80% it doesn't already own of Challenger CGF.AX. It values at some A$8 billion ($5.7 billion) the equity of Australia's largest annuity provider, whose board is considering the offer. The target, which provides a steady income for retirees in a country with an ageing population, is the antithesis of a data centre bet pumped up by AI exuberance.
TAL's return on investment, including the initial stakes it bought last year, would only be around 6.4%, using estimated net operating profit for the 2028 financial year supplied by LSEG. That'd only rise to 7.2%, Breakingviews calculates, if the buyer, a Down Under stalwart for decades before Daiichi bought in 15 years ago, could cut a fifth of its target's expenses, which may be a stretch. But at least both are above Challenger's 5.8% cost of capital, per LSEG.
The day's other new corporate marriage has actually benefitted from global volatility: coal. Miner New Hope NHC.AX is buying the remaining 74% it doesn't hold of unlisted smaller rival and neighbour Malabar Resources for A$1.3 billion ($907 million): the price of the polluting fossil fuel is up 25% since the US and Israel started their war against Iran. The acquirer is issuing shares to finance the purchase. But the new stock is barely a sixth of the value of what Firmus was aiming to sell and it is all going direct to Malabar investors. Of those two new deals, the only one of Firmus' underwriters that secured a role was Bank of America, advising TAL and Malabar.
Rounding Monday's merger mania off was progress on three private equity plays for decidedly ho-hum industries: Pacific Equity Partners-owned SG Fleet won the four-way battle for FleetPartners FPR.AX, offering A$1.1 billion ($768 million) for its vehicle fleet management rival's shares. Brookfield appears to have secured plumbing firm Reliance Worldwide RWC.AX at a A$4.1 billion ($2.86 billion)enterprise value after a go-shop period ended with no other bidders. And EQT EQTAB.ST has all but sealed its first big purchase Down Under, agreeing after months of negotiations to buy waste management specialist Cleanaway CWY.AX at a A$9.3 billion ($6.5 billion) enterprise valuation.
Of course, there's no guarantee any of these transactions get done: for example, Reliance's top shareholder is AustralianSuper, which late in the process scuppered Brookfield's pursuit of Origin Energy ORG.AX in 2023. And while the five deals could between them shovel A$350 million in fees into investment banks' coffers, assuming an average 1.5% rate, none on their own would match the A$215 million Firmus would have forked over. But there is perhaps no greater tonic for a failed AI deal than a retreat to the real world.
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CONTEXT NEWS 
Daiichi Life's Australian business, TAL Daiichi Life Australia, has offered to buy the 79.5% of Challenger it doesn't already own in a deal that values the Australian annuity provider's equity at A$8.1 billion, the target revealed in a regulatory filing on October 19. The offer represents a premium of almost 20% to Challenger shares' closing price on October 16.
Also on October 19, New Hope said it would buy the 74% it doesn't already hold of rival, unlisted coal miner Malabar Resources, in a deal valuing its equity at A$1.8 billion. New Hope will issue shares to Malabar investors to fund the transaction.
Several other already announced transactions also progressed on October 19: private equity firm EQT and waste management company Cleanaway agreed to a deal that values the latter's enterprise at A$9.3 billion; SG Fleet, which is wholly owned by buyout shop Pacific Equity Partners, won the battle to take fleet-management rival FleetPartners private at an equity valuation of A$1.13 billion; and the go-shop period for Reliance Worldwide has ended, leaving Brookfield's A$4.1 billion offer a month ago for the plumbing group's enterprise as the only one standing.

(Editing by Una Galani; Production by Aditya Srivastav)
((For previous columns by the author, Reuters customers can click on CURRIE/antony.currie@thomsonreuters.com))