Business

PacBev remains most likely suitor for pricey Foster's

MOLSON COORS may hold a 5.3 per cent stake in Foster's Group, but Credit Suisse reckons Pacific Beverages, the alcohol joint venture between Coca-Cola Amatil and SABMiller, remains the most likely acquirer of Foster's.

Amatil last week said it made sense to combine soft drinks and beer, but said Foster's was not currently attractive because of its relatively high share price.

Amatil's joint venture with SABMiller means any Foster's buy would be a combined effort. That could help ease funding pressures, and the potential help of Amatil's largest shareholder, the Coca-Cola Company, could also provide a boost.

Credit Suisse turned its attention to Foster's due to a dispute in the United States that could see the owner of the Corona brand, Grupo Modelo, come under the control of the beverages behemoth AB Inbev. That could affect Foster's right to local distribution, but it also has the implication that Inbev may not be likely to allow arch-rival SABMiller to maintain control of Corona in Australia.

The broker estimates Foster's right to distribute Corona and Stella Artois locally is worth 50c a share to its $6.25 valuation of Foster's, compared with 80c a share of potential cost savings from an Amatil/SABMiller merger.

Rio waits … and waits

It appears Rio Tinto won't see the expected $US761 million proceeds from its sale of the Jacobs Creek coalmine in Wyoming to US rival Arch Coal as quickly as it may have hoped.

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in March Xchange noted that Arch had faced a rocky road in its attempt to buy fellow Powder River Basin miner Triton Coal in 2004, including problems with the US Federal Trade Commission, and US utilities worried about increased concentration of thermal coal suppliers.

When the Rio deal was first announced, this column noted a US analyst predicted its proposed sale to Arch would not proceed until 2010. It remains to be seen whether that will come true, but yesterday's announcement means the deal is likely to be blocked for at least 30 days.

China on the prowl

China Inc's recent moves on Rio Tinto, OZ Minerals, Fortescue Metals and PanAust has led to speculation about which miner will be the next target.

It is no secret that China is looking to increase its self-sufficiency in metals supply, just as the Japanese did in earlier decades. But it has made more aggressive corporate moves than the Japanese, who typically took minority stakes in joint ventures.

Yesterday Citi issued a potential hit list for cashed-up Chinese buyers. It included Equinox Minerals, Alumina Ltd, Paladin Energy, Extract Resources and Riversdale Mining, a diverse group which produces metals such as alumina, copper, coking coal and uranium.

It added that miners listed overseas - including one very big one, US copper giant Freeport McMoran - also represented attractive targets.

Hardie counts cost

As analysts digest the latest news about the projected shortfall in the asbestos compensation fund set up by James Hardie, they are falling into two camps about the best solution.

It's mainly a timing issue, with the fund expected to run dry and then be replenished after the US housing market recovers and pushes James Hardie back into positive cash flow, thereby triggering its obligation under NSW legislation to resume contributions. Some, such as Macquarie's Douglas Macphillamy, favour having the sufferers of asbestos diseases bear the burden, with compensation paid in instalments.

Others foresee political problems if people suffering from swiftly fatal diseases such as mesothelioma die before receiving their awarded compensation in full.

Merrill Lynch's Ben Chan said that "this is an emotive issue and a situation where compensation is delayed may invoke interest outside the investment community".

In a new note to clients, Chan crunched the numbers on the assumption that the fund would borrow the shortfall, adding the interest costs to the amount James Hardie will eventually pay.

Chan said the security offered to lenders would be future compensation payments from James Hardie, so he assumes the borrowing cost will be "relatively expensive".

By the year to March 2014 he estimates $26 million of interest will have been accumulated. If it takes a further 10 years to repay, the additional cost would be more than $150 million.

It will be many years longer than originally envisaged before James Hardie's maximum annual contribution drops from 35 per cent of cash flow.

xchange@smh.com.au

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