Why interest rates won't rise again

1. Why interest rates won't rise again

2. Bonza's less-than-glorious 16 months in the sky

3. Record price for a pocket watch that went down on the Titanic

4. Can Sydney jocks shock Melbourne and build an audience?

THIS WEEK'S BIG STORY

BHP bids $56 billion for Anglo American, doubling down on copper and climate change

The Big Australian is trying to future-proof its business. Unlike some other resource stocks, it believes in the need to address climate change. In 2022 it sold off its oil and gas assets to Woodside Energy. In recent years it has made large investments in potash in Canada, betting that fertiliser will be needed to feed the expanding population. Buying Anglo American would make BHP the world's biggest copper producer. Copper is a good conductor of heat and electricity and central to the world's shift to cleaner energy.

What did BHP do?

BHP, Australia's biggest company and the world's biggest miner, lobbed a $56 billion bid for UK based Anglo American. The offer was a surprise to most investors. Anglo American quickly rejected the all-share deal, in which it would have had to spin off controlling stakes in South African platinum and iron ore companies. The chair of Anglo called the proposal opportunistic and said it failed to value the company's prospects. Anglo's share price, until the bid, was down ten per cent over the previous year. BHP's bid price was only a small premium to the trading price.

Why bid for Anglo?

The bid has been rejected. But that's not the end of the story. Based on Anglo's share price being up 25 per cent in the past few days, investors expect BHP management will make another offer. That's evident in BHP's share price which is down five per cent. Under the original proposal, Anglo shareholders would get BHP scrip. An alternate offer might involve cash and that could trigger a capital raise. There might also be other bidders including Rio Tinto, which is over-reliant on iron ore. It might take a while, but Anglo is in play and BHP is interested. 

What would it look like?

A combined BHP-Anglo American would create a company that is number one in copper, number three in iron ore, number one in metallurgical coal used to make steel (BHP still has a way to go in its green transition) and number three in nickel. The divestments of the South African mining assets which would most likely include the diamonds business, in part reflect the miner's lack of enthusiasm to invest in the geography, given sovereign risk and poor infrastructure. At a guess, BHP's market capitalisation grows significantly and it becomes 25 per cent larger than the number two company in Australia, Commonwealth Bank.

What next?

BEST OF THE WEEK

IF YOU MISSED THIS GUEST, CATCH-UP NOW

International aviation consultant Neil Hansford once gave new airline Bonza a 5% chance of making it in Australia - at best. He talks to Sean Aylmer about why he's been proven right.

CALL IT FOR WHAT IT IS

BEST SOCIAL CALLOUT 

 

Bruce: 

"How could they rival Telstra with Optus towers when Optus can't rival Telstra?"

 

ClaytonK:

"Waiiiit didn’t TPG and Telstra try to do a similar deal and it got knocked back by the ACCC?"

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Thanks for reading my opinions on the week's biggest stories.

- Sean Aylmer

All the economic chatter over the past week or so is around whether the Reserve Bank will need to lift interest rates to curb inflation. Until last week's official Consumer Price Index, the assumption was the next move in rates will be down. But at one per cent for the March quarter, price rises remain too high. This week we had retail sales figures from the ABS for March. They show the weakest year-on-year growth on record, with the exception of the introduction of the GST and the pandemic. People are hurting and they are not spending. The big increases in prices are in things that people must have - education, healthcare, housing, insurance. People can less afford luxuries. And the Reserve Bank knows it. The central bank, at its board meeting next week, might talk about rate rises, but they won't do it. The next move in rates will be down.  

Compass, the airline, lasted 28 months in the early 1990s. Bonza, the country's only independent airline since Compass, lasted 16 months before going into voluntary administration this week. Fifty dollar airfares to leisure destinations doesn't cut it when you are trying to pay for new aircraft and don't have premium business class passengers paying top dollar. A JP Morgan report this week shows why Qantas is so dominant, even over Virgin, and why a third player doesn't work in Australia. On the Melbourne to Sydney route - the busiest in the country - Qantas has just five per cent more market share, but twice the revenue. That's thanks to those business class passengers, and the Qantas Frequent Flyer behemoth. People pay more for the points. Bonza never stood a chance.  

New week, new crisis at the Star Entertainment Group. The board of the beleaguered gaming group has effectively sacked the chair, David Foster. The board decided that new leadership is needed, after Mr Foster admitted the Star isn't capable of running itself properly without a regulator-appointed overseer. It means that since December, the group has lost a chair, a CEO, a chief financial officer, a chief legal officer, a chief customer officer, a chief transformation officer, a chief of staff and the chief executive officer of its Gold Coast precinct. Apart from the fact there were clearly too many chiefs, you have to ask questions about the culture. The industry gossip is that former boss of Lend Lease and Crown Resorts, Steve McCann, is being pursued to run the business. Still, I can't see a way that Star keeps operating as it does now - perhaps a trade sale, perhaps closure.    

Sydney's premier FM shock jocks, Kyle Sandilands and Jackie Henderson, have taken their KIIS breakfast programme to Melbourne, hoping to do what others before them have largely failed to do: win an audience in the two major cities. The two host a crass, brash and often offensive programme out of Sydney. But as Sandilands has said recently, the world is smaller than it used to be. People are listening to audio - podcasts in particular - from all over the world. He's right, but breakfast radio is a very local beast. Do people want entertainment, a.k.a. Kyle and Jackie O, or do they want news and views about things in their area as they head to work? The two are being paid $200 million over ten years to do the show. KIIS owner ARN needs to make a profit in a shrinking advertising market - total commercial radio ad revenue last year across the five metro markets was around $675 million. Melbourne is the biggest market, ahead of Sydney. If Kyle and Jackie O are successful, and I think it's a less than even chance, then they'll deserve everything they get.

On April 14, 1912, as the Titanic was in the throes of sinking, 47-year old John Jacob Astor helped his new wife onto a lifeboat. He farewelled 18-year old Madeleine, who was pregnant at the time, then wandered back on to the vessel, lit a cigarette, and chatted to other ill-fated passengers. His body was found seven days later, still bearing his 14-carat gold Waltham watch, engraved JJA. That watch sold this week for 1.175 million pounds, the highest price for Titanic memorabilia ever. It beat a decade-long record belonging to the violin that was being played as the ship went down. John Astor, apparently, was the richest person aboard the Titanic.

5. Star Entertainment - the story that just keeps giving

Fear & Greed's TikTok video on a $1.6 billion tower-sharing deal between Optus and TPG sparked a big response this week.