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Barclays See Australian ‘Champions’ Restoring Deal Balance

Australia, after yielding its biggest brewer, sugar refiner, wheat seller and pulverized coal exporter to foreign acquirers in the past two years, is poised for an increase in takeovers overseas as companies seize on a strong currency, according to Barclays Plc.

The value of purchases abroad by Australian companies may match that of inbound deals next year, said Daniel Janes, the head of mergers and acquisitions for Australia at Barclays Capital. That hasn’t happened since 2007, according to data compiled by Bloomberg.

“The core theme for 2012 is rebalancing,” said Janes, whose firm helped Canada’s Agrium Inc. buy local wheat exporter AWB Ltd. in 2010. “One of the parts will be Australian champions taking their opportunities on the global stage.”

Australia’s natural resources, health care, consumer and agricultural companies operate in global industries and are encouraged by a favorable exchange rate to scout the world for assets, Janes said. The Australian dollar has gained 54 percent since October 2008.

“The exchange rate makes it more attractive to buy rather than sell, as long as the sectors are flourishing,” said Ron Masulis, a finance professor at the Australian School of Business in Sydney, part of the University of New South Wales. “But it’s wise for any potential acquirer to be a bit gun-shy, especially as they move further away from their base.”

SABMiller Plc, based in London, in September agreed to buy Foster’s Group Plc, maker of Victoria Bitter. St. Louis-based Peabody Inc. is buying Macarthur Coal Ltd. of Brisbane.

‘Elephant Deals’

Those acquisitions were among the $72 billion of inbound purchases announced in 2011, according to Bloomberg data. That’s more than double the $28 billion of acquisitions overseas by Australian companies, which included the $12.1 billion takeover by Melbourne-based BHP Billiton Ltd., the world’s largest mining company, of Petrohawk Energy Corp. in Houston.

Such “elephant deals” have reinforced confidence in takeovers among Australian boards, Janes, 39, said in the Dec. 5 interview in Sydney. Barclays Capital ranks third behind Goldman Sachs Group Inc. and JPMorgan Chase & Co. among merger arrangers in Australia this year, up from 17th in 2010.

The gap between the price companies are seeking for assets and what buyers were prepared to pay narrowed in the second half, and more sales are planned for next quarter, Janes said. He declined to name any potential acquirers.

“No year is ever considered successful unless the elephant deals come to pass,” said Janes. “This year had its good share of elephant deals, but 2012 should reflect the same level. Australia has the opportunity to create leading companies and take them out onto the international market and acquire.”

Centro’s Failure

The value of announced takeovers involving Australian companies stands at $132 billion so far in 2011, compared with $148 billion for all of last year, Bloomberg data show,

Not all Australian companies have enjoyed success overseas. Centro Properties Group this month won final approval to convert borrowings into equity after a debt-fueled $9 billion U.S. buying spree between 2006 and 2007 backfired.

Treasury Wine Estates Ltd. cost Foster’s at least $8 billion to build through acquisitions such as Beringer Wine Estates Holdings Inc. in 2000. Treasury was spun off in May and now has a market value of A$2.5 billion ($2.6 billion).

National Australia Bank Ltd., Australia’s fourth-largest lender, in October 1997 agreed to pay $1.2 billion for HomeSide Inc., a U.S. home-loan provider. The bank sold HomeSide in 2002 after $2.2 billion of writedowns stemming from the takeover.

In Australia, Janes said he expects private-equity firms to buy and sell more assets in 2012 as access to credit improves. They’re likely to bid for companies in healthcare and consumer-related industries, and for those offering services to the mining industry, he said.

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