Australian mining and media magnates, looking to cash in on valuations at their lowest in a decade, are behind stake buys and takeover bids worth nearly $7 billion in the last two weeks, offering some hope for moribund equity and deals markets.
The deals are aimed at raising stakes in companies that billionaires including Andrew Forrest, James Packer and Gina Rinehart founded or sectors they are itching to expand in, underscoring their view of current share prices.
The benchmark S&P/ASX 200 Index, languishing near 8-month lows, is 41 percent below its 2007 peak as market turmoil and concerns about Europe's debt woes saps sentiment. The U.S. market, by contrast, is just 12 percent off its 2007 peak.
"They just see values as cheap," said Shane Oliver, head of investment strategy at AMP Capital Investors, which manages A$124 billion ($124 billion) in funds.
"It's an opportunity for the individuals to throw in more money into assets that they best know about."
The moves are led by electrician-turned-billionaire Nathan Tinkler, who is seeking to take the country's second-largest independent coal producer Whitehaven private in a deal likely to be worth over A$4 billion.
Tinkler, who owns 21 percent of Whitehaven, has seen the market value of his stake fall by up to A$300 million since finalising a deal to merge two coal businesses with Whitehaven earlier this year.
Tinkler is currently trying to line up debt and equity partners to help fund the deal, sources told Reuters.
Like Tinkler, Fortescue Metals Group founder and major shareholder Andrew "Twiggy" Forrest appears to view his company as undervalued and has spent more than A$100 million boosting his stake through on-market trades in the past week.
Forrest unsuccessfully sought to raise his stake by a further 1.9 percent through a A$294 million "all or nothing" on-market offer earlier this week, dealers said.
Both Tinkler and Forrest are investing in the resources businesses that made them their wealth, but other magnates are placing bets in new areas.
Gina Rinehart, the Asia-Pacific region's richest woman with a fortune estimated by Forbes at $18 billion, has raised her stake in media group Fairfax to 18.7 percent.
With the media industry in turmoil globally, tycoon James Packer is trying to finalise a sale for his pay-TV assets in Consolidated Media for A$2 billion to Rupert Murdoch's News Corp to expand his casinos and entertainment business.
Media mogul Kerry Stokes last week asked Australia's competition regulator to look into a possible rival bid for Consolidated, in which his firm Seven Group has a 24 percent stake..
ONCE IN A DECADE OPPORTUNITY?
The flurry of activity comes as M&A activity in the country fell 54 percent in the first half of the calendar year to $45.1 billion, Thomson Reuters data shows.
Deals have dried up as access to credit becomes more difficult and shareholders demand greater prudence, preferring to have cash returned.
While access to credit markets has become tougher for tycoons as well as corporates, Australian billionaires don't face the same kind of shareholder pressure, allowing them to move more swiftly.
The benchmark index is trading at around 11 times forward earnings, its lowest level in over a decade. Many stocks are trading near record lows, providing a rare opportunity for investors who have faith in the stock or sector.
"The share market is clearly under pressure. It is quite possibly a move to tap into cheap asset prices. It is quite like a private equity move," said David Cassidy, chief equities strategist at UBS.
Private equity firms typically buy beaten down companies, restructure them by selling off assets, drive efficiency and exit five-to-seven years later at a healthy profit.
In a sign of valuation at play, private equity deal flow is starting to rise sharply. Boosted by a large bid for a gas pipeline company, Thomson Reuters data shows second-quarter PE-backed M&A surged to $2.2 billion, up five-fold from the first quarter.
This article is copyrighted by Reuters
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