Back home, as the good news flows into the Aussie market with takeover after takeover after takeover, some of the underlying issues are perhaps being glossed over. Take Coca-Cola Amatil’s latest profit percentage increase which is in the high single digit range.
Much of the reason for the increase in revenue was due to price rises caused by higher commodity costs, mainly the sugar that goes into the drinks and aluminium for the cans that hold the drink.
Last year Coca-Cola Amatil passed on higher than inflation price rises to customers of 4%. With little sign of a slowdown in commodity markets, and with more and more sugar being diverted towards the production of ethanol, further above inflation price increases are almost assured.
As for the takeovers, it seems as though there won’t be a single Australian company left within the next couple of years if things keep going at this rate. Orica has received a takeover offer of AUD$32 per share from private equity firms - surprise, surprise - Bain Capital Partners and Blackstone Capital Partners.
Again - surprise, surprise - the company has responded to the offer saying that “The board of Orica has carefully considered the consortium's proposal and believes that it significantly undervalues Orica and its growth prospects.”
The takeover offer was 15% above the previous traded price of Orica, and following the announcement the shares traded a further AUD$1 or so above the AUD$32 offer in anticipation of another private equity firm getting involved.
If the deal goes through it means another AUD$10 billion that needs to be reinvested in the stockmarket along with the AUD$18 billion from the Coles Group sell, and the AUD$11 billion from Qantas.
For a market as small as the Australian market, AUD$40 billion is a big amount to absorb and will undoubtedly help to push the market up higher.
Kris Sayce
The Daily Reckoning Australia
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About the Author
Kris Sayce began his financial career in the City of London as a broker specializing in small cap stocks listed on London's Alternative Investment Market (AIM). At one of Australia's leading wealth management firms, Kris was a fully accredited adviser in Shares, Options and Warrants, and Foreign Exchange. Kris was instrumental in helping to establish the Australian version of the Daily Reckoning e-newsletter in 2005. In late 2006, he joined the Melbourne team of the leading CFD provider in Australia.
