INSIDER

Recent discussions in the boardrooms of the financial sector have covered the full gamut of possible wealth management transactions as the industry sweats on the potential impact of an Australian Competition and Consumer Commission ruling on National Australia Bank's bid for AXA Asia Pacific.

One idea that looks to have progressed beyond the pitch book is a tie-up between ANZ and AMP. Sources say the two parties are talking about a deal that would involve ANZ transferring ownership of its ING wealth management, life insurance and advice businesses to AMP in a scrip-based deal. This transaction would be along the lines that NAB reportedly proposed last year for folding its MLC business into AMP in return for a stake in AMP of about 30 per cent.

The ANZ businesses that are the subject of discussions formerly traded under the Mercantile Mutual brand and were held in a joint venture with ING Group before ANZ bought out the Dutch partner's 51 per cent interest late last year. ANZ paid $1.76 billion for full ownership - 1.2 times embedded value.

Pricing in wealth management has moved up a little since then, and applying the embedded value multiple of 1.4 that NAB is offering for AXA Asia Pacific implies a valuation of $4.1 billion for the ING operations.

At this pricing, ANZ would emerge with a stake of about 25 per cent in the expanded AMP operation.

A deal on these terms would bulk up AMP's wealth management operations and unlock some synergy opportunities, while ANZ's position as a strategic shareholder would keep AMP out of the hands of circling predators, such as Commonwealth Bank.

A NOTCH SHORT

Listen to the company's publicity and it's been a good couple of days for Asciano. Yesterday's strong half year result (labelled an "absolute cracker" by Goldman Sachs JBWere) followed Tuesday's assignment of investment grade credit ratings from Standard & Poor's and Moodys.

According to Asciano's managing director, Mark Rowsthorn, the credit ratings "provide validation of the strength of our business, and open up a range of new options as we implement our medium-term funding strategy."

But, despite the upbeat commentary, the ratings result is not as good as some in the market were expecting. Five months ago when Asciano signalled an intention to obtain credit ratings, Macquarie Equities thought that a BBB or BBB rating would be a reasonable target, a notch or two above the BBB- that Standard & Poor's assigned this week.

The purpose of obtaining the credit rating is to enable Asciano to tap the bond market in advance of the May 2012 expiry of $2.25 billion of bank debt. There is going to be a tidal wave of corporate and private equity debt seeking refinancing around that time, and Asciano's financing challenge will not be easily addressed, particularly with a credit rating that only scrapes into investment grade.

Helpfully, S&P has set out the pathway to an upgrade. If Asciano can maintain market position across its businesses (which will not be easy when competing with a newly invigorated Queensland Rail) and increases free cash generation, an increase to BBB is possible in the next 12 to 18 months.

NASTY SURPRISE

The reporting season has thrown up few negative surprises as companies increasingly comply with regulatory pressure to release bad news as it comes to hand. One exception is the timber company Gunns, which surprised the market on Monday by reporting a 24 per cent revenue slump that left it with a half-year profit of just $400,000 - down 98 per cent.

The result sent Gunns' share price into a tailspin, falling 21 per cent on the day of the result, and trending lower as the week progresses.

Yesterday the company responded to an ASX query about the timeliness of its disclosure by pointing to a number of statements made about tough trading conditions in recent months. However, the market had not realised just how severely a downturn in Asian markets for woodchips and a rising Australian dollar would eat into corporate profits.

The poor trading results leave Gunns scrambling to restructure in a fashion that will allow it to obtain finance for its long-delayed $2.2 billion pulp mill at Bell Bay. The company has told investors that it hopes to name the investors in the project, but unless profitability improves, funding for the pulp mill may take a secondary role to survival in the board's mind in coming months.

Elsewhere in the timber sector, Forestry Enterprises Australia went into a trading halt last night. The company has been negotiating amendments to $200 million of financing facilities for some time, and expects to make an announcement in relation to financial covenants and finance facilities by Friday morning.

FAST AND NIMBLE

Fancy footwork from the team at Miclyn Express Offshore enabled the company to ink a strategic acquisition yesterday, just days before the scheduled lodgement of a float prospectus. Miclyn has acquired a small Perth operator, Samson Maritime, which has 13 vessels servicing the oil and gas industries off the West Australian coast.

Miclyn is headquartered in Singapore and operates more than 100 oil and gas service vessels in the Middle East and South East Asia. The company already has a niche Australian presence but the Samson acquisition will position the merged group to claim additional market share in the high-growth Australian market.

dsymons@fairfaxmedia.com.au