This week's news: The Coffey takeover goes unconditional, BHP makes a commitment to strengthen its balance sheet, we provide updates on Dicker Data and PMP regarding Dick Smith, PMP benefits from the exit of Bauer Media and Plenary bondholders vote in favour of a previously announced resolution
Coffey takeover goes unconditional
On 15 January, Coffey International announced
that Tetra Tech’s off-market takeover offer was declared unconditional. Coffey bondholders have several options:
- Under the change of control condition they are able to sell their bonds back to the company at 101% of face value plus accrued interest
- Continue to hold the bonds which have call dates of September 2017 at 103% or September 2018 at 101.5% of par before maturity in September 2019
A summary of these developments and the associated timelines can be found in the full note, click here.
BHP bonds attractively priced following miner’s recommitment to balance sheet strength
BHP has provided its half yearly operational review and reaffirmed its commitment to protecting its balance sheet. Bond prices have declined in recent weeks following the commodity price weakness and the current yield looks attractive given the credit quality of the issuer and their commitment to protecting the balance sheet. Click here to read more.
Dicker and PMP: The impact from Dick Smith administration
Dicker Data: DDR has not made an announcement regarding Dick Smith. This suggests the administration will not have a material impact - which would require market disclosure. In terms of estimating potential bad debt, the company has a very diverse customer book and its likely DS probably represents some 2-3% of revenue. Given DDR generates ~$1bn in earnings this potentially could represent ~$30m. However as part of its Westpac receivables financing facility the entire accounts receivable book is covered by insurance, which provides 90% protection against any non-payments. This leaves an estimated maximum $3m exposure, which if accurate is manageable and supports the assertion the no announcement has been made given it is immaterial.
In terms of loss of revenue, the overall demand for product will remain the same and will be absorbed by other retailers. As the second largest IT distributer in Australia and NZ and the leading supplier of various key brands with relationships with all major retailers it is likely demand will just increase from other of DDR’s clients.
PMP: PMP has announced a maximum of $4m of bad debt against DS. This is in the absence of any recovery. This is not considered of great concern given the businesses low debt and solid credit profile.
On other PMP news as previously highlighted here, the company was set to benefit from the exit of Bauer Media from magazine distribution in Australia.
PMP’s has now confirmed it has entered into an agreement with Bauer Media to provide retail magazine distribution for the group, enabling Bauer to focus on content rather than logistics.
The new contract is expected to generate circa $300m in sales per annum with around $100m in FY16. The additional margin, negative working capital benefits and capital expenditure in FY16 are not material and have already been incorporated into the 2016 AGM guidance.
PMP state that as FY17 progresses, additional margins will strengthen the business by mitigating the impact of lower base business volumes and contributing some additional profits on a net basis.
Plenary
Further to last year’s announcement by Plenary of its intention to restructure its business to facilitate a capital raising, Plenary has advised that the resolution has been successfully passed. As such, the planned restructure of the Plenary business will go ahead subject to some final consents.