Flinders' show trial
PORTFOLIO POINT: Flinders Mines says it will continue to work with suitor Magnitogorsk Iron & Steel Works, but it’s clear this is a broken deal.
Flinders Mines (FMS). It’s hard to tell what’s going on with Magnitogorsk Iron & Steel Works’ takeover of Flinders Mines, but it’s almost certainly bad news: I have never seen a deal fall apart in the small window following shareholder approval of a scheme of arrangement, but that’s exactly what has happened here.
Last week, Magnitogorsk minority shareholder Elena Egorova filed an injunction in Russia to block the $554 million takeover which Flinders shareholders agreed to two weeks ago. An attempt by Magnitogorsk to appeal the injunction was knocked back by the arbitration court in Chelyabinsk and it’s not hard to see the deal being tied up in court until the the implementation agreement runs out on July 21.
Flinders Mines says the two parties still want to work together towards a bid, but this is a broken deal.
Normally, once shareholders approve a scheme, the court approval always follows and the deal is done, but in my opinion the Russians secretly want to pull out of this deal and are using this hitherto unknown shareholder to do the work for them.
The reason is that iron ore prices have dropped from $150 a tonne to about $110 since the 30c-a-share bid was made in November, and may have further to fall if it’s true that China’s economy is slowing.
In December, I said it’d be a brave speculator who bought into a shaky deal involving a bidder from a traditionally unreliable country. If you’re still in Flinders, it’s past time to sell, because if this deal does fall over – which I think it will – the company’s stock will fall back to the 14-15c region it was trading in before the bid, and may fall even further, because those commodity prices aren’t what they were.
For the same reason, any offer from another bidder, such as Rio Tinto which is still closely watching proceedings, is highly unlikely to be in the lofty realm of 30c.
Flinders’ share price has slumped, closing today at 18.5c, 15.9% lower, at a 38.3% discount to the bid, and this deal is yet another lesson to be very wary about getting into a takeover bed with the Russians.
Crown (CWN), Echo Entertainment (EGP), Consolidated Media (CMJ). James Packer has opened up speculation that he might like to take over Crown, after exercising 'creep’ provisions to increase his stake to just over 48%, but I think the real target is likely to be Echo Entertainment and funded by a sell-down of the Packer stake in Consolidated Media.
By using the creep rule, investors with shareholdings over 20% are allowed to buy 3% every six months without making a takeover bid for the whole company, thereby depriving other shareholders of a premium for their shares in the case of a change of control.
Packer will be able to inch over 50% and take control of Crown by the end of the year. The question then would be whether he bids for the lot, and I’ve got to say the answer is probably no. There’s really no reason for him to privatise Crown when he can use it as a vehicle to buy a controlling stake in Echo.
Consolidated Media – Packer’s last real media asset – is a good takeover prospect itself, because I think Packer is likely to sell down the 50.05% stake he controls to fund the casino expansion, and Kerry Stokes, with his 24.44%, is the most probable candidate to pick that up as well as the remaining 25% left of the free float. Consolidated Media is also looking pretty good now that Foxtel is allowed to buy Austar – it owns 25% of the pay-TV operator – and it’s well known that Stokes has long desired a piece of the pay-TV pie.
The most obvious and likely takeover target here, though, is Echo. And although there was speculation that Genting Singapore may be thinking about getting on the action, after adding an extra $US1.8 billion to its $US2.6 billion kitty, Packer is still the most likely buyer.
Genting would have to pass probity, which possibly wouldn’t be as difficult for it as, say, a US or Chinese casino company, but Packer’s already passed the test in Australia and he’s also got a head start with his 10% stake.
There isn’t actually a bid on the table for Echo so it is a speculative buy, but it ticks a lot of my boxes as one of the better prospective situations out there (see Hot tips for trading takeovers).
Echo shares closed at $4.46 – Packer’s 10% buy pushed prices sharply higher in February, and it has risen from there – while Crown rose 1.02% to $8.84 and Consolidated Media dropped 0.31% to $3.15.
Ridley Corporation (RIC). Stock feed and salt producer Ridley is under a cloud of speculation that it may be a mark for a hungry suitor. The rumour comes after a sighting of CEO John Murray lunching with Ruralco chief John Maher last week, as well as the fact that it’s half way through a strategic review, operates in an industry in which M&A is booming, and its biggest shareholder, 22% owner Guinness Peat Group, wants out.
But in my opinion, Ridley is a second-tier takeover target. In many respects, it’s like Goodman Fielder: it has neither irreplaceable nor monopolistic assets, and it has competitors both at home and overseas. As I’ve said before, tier one speculative takeover targets in the agriculture sector are those with assets that can’t be easily replicated, such as Graincorp or Australian Agricultural Company.
In saying that, Ridley is in a booming sector that, irrespective of what happens to the global economy, is going to be vital for ensuring food security.
Tom Elliott, a director of Beulah Capital and MM&E Capital, may have interests in any of the stocks mentioned.
-Takeover Action April 2-13, 2012 | |||||
Date | Target |
ASX
|
Bidder |
(%)
|
Notes |
1/03/2012 | Accent Resources |
ACS
|
Xingang Resources |
60.65
|
|
3/04/2012 | Brockman Resources |
BRM
|
Wah Nam International |
78.11
|
|
9/03/2012 | Curnamona Energy |
CUY
|
Havilah Resources |
45.4
|
|
16/12/2011 | Gold One International |
GDO
|
BCX Gold Investments |
82.8
|
Unconditional |
15/12/2011 | Hastings Diversified |
HDF
|
APA Group |
20.71
|
|
11/04/2012 | Magma Metals |
MMW
|
Panoramic Resources |
12.02
|
Ext to May 10 |
21/03/2012 | Scandinavian Resources |
SCR
|
Hannan's Reward |
17.11
|
|
27/03/2012 | Signature Metals |
SBL
|
LionGold |
77.22
|
Closed |
4/04/2012 | UCL Resources |
UCL
|
Minemakers |
13.1
|
Ext to May 8 |
Schemes of Arrangement | |||||
9/03/2012 | Aston Resources |
AZT
|
Whitehaven Coal |
19.99
|
Vote Apr 16 |
6/03/2012 | Gloucester Coal |
GCL
|
Yancoal (Yanzhou Coal) |
64.5
|
64.5% holder Noble Group in favour |
10/04/2012 | Ludowici |
LDW
|
FLSmidth |
22
|
Vote May 31 |
11/10/2011 | Sundance Resources |
SDL
|
Hanlong Mining Investment |
17.99
|
|
Reverse Takeover | |||||
17/02/2012 | Millepede International |
MPD
|
Angline Pastoral Pty Ltd |
0
|
Angline and shareholders to control 67.6%. Vote early May |
Foreshadowed Offers | |||||
28/02/2012 | Goodman Fielder |
GFF
|
Wilmar International |
5.00-
|
Press speculation |
6/02/2012 | Spotless Group |
SPT
|
Pacific Equity Partners |
19.64
|
Non-exclusive due diligence |
Source: News Bites