Sphere attracts another suitor

PORTFOLIO POINT: Xstrata may have a rival for Sphere Minerals, now Sin-Tang Development of Singapore has shown interest.

Sphere Minerals (SPH). It’s been a slowly grinding higher since we looked at Xstrata’s bid for this iron ore miner back on August 30 (click here) but things have finally started to heat up with Singaporean company Sin-Tang Development now entering the mix as a potential counter-bidder.

At the moment the Swiss mining giant Xstrata has a friendly cash bid of $2.50 a share on the table. This $428 million bid for the Perth-based iron ore miner never looked like it would escape widespread attention because this is an attractive company with undeveloped resources in what is currently a lucrative time for iron ore.

Sin-Tang is a supplier of infrastructure to mines and it wants a shot at developing Sphere’s assets in West Africa. Apparently it has been sitting on just under 5% of the company before emerging last week with an 8.63% stake. Given its focus on infrastructure, it’s possible that it won’t make a bid, but try to put together a separate consortium to do that; however it could afford to bid for the whole company should it want to.

The stock was trading at between $2.57 and $2.58 until today, when it shot up 5% to close at $2.70. Xstrata’s bid has already been recommended by the board although, interestingly, the Swiss miner does not have much of a stake in Sphere.

For investors noting this flurry of activity around Sphere, and considering a stake in iron ore, it’s just a question of risk. African miners – be they in iron ore, gold or anything else – are a more volatile investment. Even when a company is listed in Australia, you’ve got to look where their assets are. They may list here because they can raise capital here, but their assets are in Africa, and the fact that we’re seeing takeover action for an African-based company shows that there are a few people around happy with that level of risk.

Apollo Gas (AZO). There has been a friendly bid by Arrow Energy spinoff Dart Energy for Apollo Gas. The deal is three Dart shares for every four Apollo shares, or an implied value of $145.5 million. The stock is trading pretty much at the value of the bid, or within a cent or two, and Dart already owns 21% of Apollo.

It’s unlikely that there will be a counter-bidder for this company. What is interesting is that since Dart launched the bid last week its own share price has actually gone up which is unusual, as most of the time when a scrip bid is launched, the share price drops. In this case, Dart securities have rallied 25% since the bid was announced, to about $1.32, so there is a feeling that Dart could gain some nice synergies from this deal.

Australian Securities Exchange (ASX). The ASX had a strong rally last week on takeover rumours but for the moment any potential deals have taken second place to the news that ASX chief executive Robert Elstone will step down after four years at the helm.

Now if there is going to be any M&A activity here – and I’m not saying there is – the ASX is going to be the bidder, not the target, which makes last week’s price rise even less logical. There was prolonged talk at one point that Macquarie Bank was going to take over the ASX and merge it with the London Stock Exchange.

However, I think the benefits of linking these exchanges are somewhat overstated. The last big deal the stock exchange did was merging with the Sydney Futures Exchange and most exchange deals that work well are consolidations within a single market.

AWB (AWB). Now to a bid over which there is a little more certainty. Canada’s Agrium has received the approval of the FIRB (Foreign Investment Review Board) for its $1.50 a share bid for AWB. FIRB approval was not considered a fait accompli by some who were concerned about the influence of the rural independents. The reality, however, seems to be that the hung parliament simply delayed everything by a few weeks and now the machinery of the bureaucracy in Canberra is functioning smoothly.

This could have broader implications, as I still believe there is the chance of a foreign counter-bidder. Any potential counter-bidder would have been waiting to see what the FIRB ruled before showing their own hand. AWB is still trading at 2¢ below the bid, at $1.48, which may not seem like enough reward to buy into the stock, but it will probably take a couple of months before the deal settles and we’re yet to see what other bids may emerge.

With AWB you’ve got a derisked deal, still trading below the bid. Foreign offers may eventuate, and of course you’ve got the domestic under-bidder Graincorp, which could conceivably make a new offer this time with a cash component. It’s one to watch out for.

Elders (ELD). Agrium is not afraid to have multiple balls in the air, it would seem, with reports emerging that the company is running the ruler over Elders’ struggling fertiliser business Hi Fert. While this would be a minor play for Agrium, the company is understood to have been granted access to financial records for the debt-ridden Hi Fert, in which Elders holds a 50% stake, while AWB holds the other half. It is a natural play for Agrium to make, but it could mean some stiff competition for the likes of Australia’s Incitec Pivot.

Aevum (AVE). We can close the book on this one. Stockland still has about 60% in Aevum after convincing one of the big stakeholders – Fisher Funds Management – to part with its stake of 8.74%. Its final bid of $1.80 is now $1.77, because Aevum paid a 3¢ dividend in the interim. The offer has also been extended to next week, but the deal seems to be done.

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Tom Elliott, the managing director of MM&E Capital, may have interests in any of the stocks mentioned.

-Takeover Action September 27-October 1, 2010
Date	Target	ASX	Bidder	(%)	Notes
30/09/10	Adtrans Group	ADG	AP Eagers	38.60
30/09/10	Aevum	AVE	Stockland	60.50
30/09/10	Ammtec	AEC	Campbell Brothers	30.80
28/09/10	Apollo Gas	AZO	Dart Energy	21.00
16/07/10	Aurium Resources	AGU	Dourado Resources	0.00	Off-market proposal.
22/09/10	Bowen Energy	BWN	Bhushan Steel	59.60	Bid for remainder.
30/09/10	Centennial Coal Company	CEY	Banpu	71.30
12/08/10	Entellect Solutions	ESN	Mooter Media	0.00
30/09/10	Gloucester Coal	GCL	Noble Group	59.90
17/09/10	India Equities Fund	INE	Bell IXL Investments	0.00
30/09/10	NGM Resources	NGM	Paladin Energy	64.10	NGM challenges bid lapse.
30/09/10	North Queensland Metals	NQM	Conquest Mining	78.40
8/07/10	Padbury Mining	PDY	Fe Ltd	0.00	Seeks to replace board.
30/09/10	Sphere Minerals	SPH	Xstrata	8.19
20/09/10	Wallace Absolute	WAB	Armidale Investment Company	67.40
22/07/10	Wallace Absolute	WAB	E-quest Capital	3.40
21/09/10	Vesture	VES	Prudential Investment Company of Australia	42.50
Scheme of Arrangement
3/09/10	Andean Resources	AND	Goldcorp	19.90	Vote late 2010.
9/09/10	Avoca Resources	AVO	Anatolia Minerals Development	0.00	Vote December.
20/08/10	AWB	AWB	Agrium	0.00
30/07/10	AWB	AWB	GrainCorp	0.00	Vote late 2010.
22/07/10	BCD Resources	BCD	Bendigo Mining	19.92	Vote November.
7/09/10	Choiseul Investments	CHO	Milton Corporation	11.90	Vote November.
8/09/10	Innamincka Petroleum	INP	Drillsearch Energy	0.00	Vote December.
29/08/10	Intoll	ITO	Canada Pension Plan Investment Board	0.00	Vote November.
13/08/10	ITX Group	ITX	Avnet	0.00	Vote October.
9/09/10	Keycorp	KYC	Archer Capital	0.00	Vote November.
21/07/10	Mitchell Communication	MCU	Aegis Group	19.90	Vote October.
1/07/10	Mosaic Oil	MOS	AGL Energy	12.80	Vote October.
19/07/10	Ross Human Directions	RHD	Peoplebank Holdings	0.00	Vote October.
6/07/10	Sylvastate	SYL	Whitefield	0.00	Same CEO.
20/09/10	Wridgways Australia	WWA	Santa Fe Holdings	0.00	Vote November.
Foreshadowed Offers
9/09/10	Aevum	AVE	FKP Property	0.00	Early discussions.
3/06/10	BOOM Logistics	BOL	Archer Capital, McAleese Group	10.47	Indicative scheme proposal.
20/09/10	Caledon Resources	CCD	Unnamed party	0.00	Indicative approach.
1/09/10	North Queensland Metals	NQM	Unnamed party	0.00	Indicative offer.
17/08/10	Redflex Holdings	RDF	Macquarie Group	0.00	Turns down proposal. Talks to other parties.
13/09/10	Ross Human Directions	RHD	Corom	0.00	Due diligence.

Source: News Bites