Shares in PanAust continued to rise yesterday in the expectation that its major shareholder, China’s state-owned Guangdong Rising Assets Management (GRAM), will increase its $1.4 billion takeover tilt.
PanAust edged another 6c, or 2.8 per cent, higher to $2.18 to approach the initial indicative proposal from 23 per cent shareholder GRAM for a $2.20-a-share bid, later increased to $2.30.
The shares rocketed on Tuesday when leaks from China prompted Brisbane-based PanAust to confirm GRAM was angling to make a takeover bid.
PanAust has dismissed the improved indicative $2.30 bid as “materially below’’ what the board would endorse, but has nevertheless agreed to give GRAM access to due diligence to “assist it to materially improve its indicative offer price’’.
Pending that outcome, analysts who follow PanAust have been telling clients that while it is not certain a deal will be reached, GRAM is not all that far off from fair value with its higher $2.30 offer — a 46 per cent premium to the $1.58 the shares were trading at before the bid.
Deutsche Bank said it expected that the due diligence process under way would lead to an improved offer from GRAM, PanAust’s biggest shareholder since 2009.
“Given PanAust commentary indicating a higher offer would be needed to secure their recommendation, we believe a revised price between $2.40-$2.86 a share could be acceptable,’’ Deutsche said.
But it noted that the leaking of the earlier $2.20 offer, and the increase in the proposed offer to $2.30 a share, suggested that GRAM “wants existing shareholders to be involved in the process, possibly garnering support for a smaller increase in price rather than the ‘material improvement’ PNA are looking for’’.
It said the emergence of a counter-bidder was unlikely, and that GRAM’s ultimate intention with PanAust was unclear given the previous perception that it was a passive investor with no intention of buying the company.
“With this in mind, it’s possible GRAM believed PanAust was undervalued and wanted control as investors, not as operators. Although an undesirable outcome in our view, it’s conceivable GRAM end up with 50.1 per cent ownership of PanAust and retain the existing operating and corporate structure, including the ASX listing,’’ Deutsche said.
Credit Suisse has an unrisked valuation on PanAust of $2.65 a share.
‘‘Inclusion of a control premium would suggest a value in excess of our un-risked value,’’ the broker said.
Stripping out a risked value on PanAust’s copper project in Chile, left a “solid” $2.50 a share valuation, Credit Suisse said.