Atma. Doesnt need to be DSO. That old school of thought is gradually evaporating. If its iron they will buy it. High quality magnetite is in heavy demand. DSO obviously preferred, but the notion that is that or nothing is ancient history.
Murchison Offers A$1.64 Billion for Ore Rival Midwest (Update3)
By Jesse Riseborough and Jason Scott Enlarge Image/Details
May 26 (Bloomberg) -- Murchison Metals Ltd., an Australian iron ore producer, agreed to buy rival Midwest Corp. for A$1.64 billion ($1.6 billion) in shares, trumping an offer from China's Sinosteel Corp.
The bid values Midwest at A$7.71 a share, 21 percent more than Sinosteel's cash bid, based on closing prices and the offer ratio in a statement today by Perth-based Murchison. It's reviving its offer for Midwest, dropped in February after being outbid by China's second-largest iron ore trader.
The deal allows Murchison and Midwest to combine resources to build a port and rail network, rather than develop competing projects. Australia, the world's biggest exporter of the steelmaking material, has about A$17 billion of iron ore projects under construction to feed demand from China.
``Neither company directly has enough resources to complete the rail and port project individually, so it would be much easier if the two companies get together,'' said Glyn Lawcock, a Sydney- based analyst for UBS AG. ``Such a partnership would make perfect sense.''
Perth-based Midwest rose 75 cents, or 12 percent, to a record A$7.00 at the 4:10 p.m. Sydney time close on the Australian stock exchange. Murchison jumped 39 cents, or 9.7 percent, to A$4.43.
Midwest is being advised by Morgan Stanley and Murchison by Gresham Advisory Partners Ltd. Murchison's Chairman Paul Kopejtka and Managing Director Trevor Matthews will take the same roles in the new company, the two companies said in a joint presentation to the exchange. Beijing-based Sinosteel holds a 19.9 percent stake in Midwest and a 2.4 percent stake in Murchison. Sinosteel spokesman Li Kejie wasn't immediately able to comment.
`Too Aggressive'
``Sinosteel should evaluate Midwest and decide whether to raise its offer,'' Helen Lau, a Shanghai-based iron and steel analyst at Daiwa Institute of Research Ltd., said today. ``Since Australia and other iron ore producers have been increasing their capacities, we don't want to see the Chinese be too aggressive in making expensive acquisitions as the iron ore market may turn around within the next two years.''
The proposal will be put to shareholders of both companies by way of a scheme of arrangement, which requires a majority of 50.1 percent of Midwest votes cast for approval, Murchison said. ``The beauty of the structure is that by going this way we have been able to negate, we think reasonably effectively, the ability of Sinosteel to block the deal,'' Michael Ashforth, managing director of Gresham Advisory, said today on a conference call with reporters from Perth.
Two Ports
Murchison, in which Posco, Asia's third-biggest steelmaker, owns a 9.8 percent stake, and Mitsubishi last June agreed to jointly develop the A$3 billion Jack Hills iron ore mine, port and rail project. Midwest signed an initial accord with Yilgarn Infrastructure Ltd. the same month to develop a similar port and railroad project to be completed by 2011. Both proposals are to develop the Oakajee port and railway to take ore from mines in the Mid West region of Western Australia.
``The outlook for the iron ore sector remains very positive and the merger provides shareholders of both companies with the opportunity to share in the benefits of a combination,'' Midwest Chief Executive Officer Bryan Oliver said in the statement.
The Western Australia state government is due to decide on the winning tender for Oakajee port by June 30. The combined company would have 9 projects, including two producing mines.
Six Years
Acquisitions of coal and iron-ore assets in Australia will rise as steelmakers try to reduce costs, UBS AG said in a May 21 report. The price of iron ore has risen for six straight years to a record on increased demand from China, the world's largest consumer of the material.
The Midwest board recommends the proposal based on an initial study, it said. It has not withdrawn its recommendation for Sinosteel's cash bid, it said.
Under the terms of the offer, Midwest would remain the publicly traded company with Murchison shareholders owning 52.2 percent of the stock and Midwest shareholders owning 47.8 percent, Murchison said.
In an earlier statement today, Murchison said it had paid A$70.8 million to double its stake in Midwest to 9.98 percent. Harbinger Capital Partners owns a 18.76 percent stake in Murchison, according to Bloomberg data.
``I have every confidence that this merger will deliver significant value for shareholders of both companies,'' Harbinger Capital Chairman Philip Falcone said in the Murchison statement.
Fortescue Metals Group Ltd., seeking to be Australia's third- largest iron ore exporter, rose to near a record in Sydney trading after the Australian Financial Review said Sinosteel wants a A$2.2 billion stake. Sinosteel is in talks with Fortescue shareholder Harbinger to buy an 8 percent stake, the newspaper reported, citing Sinosteel's Australia deputy general manager William Ren. He declined to comment today when contacted by phone in Perth.
Harbinger hasn't indicated to Fortescue that it was seeking to sell its stake, Cameron Morse, a spokesman for Perth-based Fortescue, said today by phone.
To contact the reporter on this story: Jesse Riseborough in Melbourne at [email protected]
