Ann: Becoming a substantial holder from Wyloo, page-72

Western Areas reports its full year results tomorrow (24th). IGO reports its full year results on the 31st August.

Given ASX disclosure requirements, if a deal is close, I think the absolutely earliest time they would announce it would be tomorrow. It doesn't make much sense for WSA to have to go into a trading halt right before they release their annual results. A lot of the major investment banks are advising either WSA (Goldmans + Rothschilds) or IGO (Macquarie). Also notice that BHP's advisors for the recent Woodside merger were JP Morgan, Barclays, and Goldmans. It means if these discussions are real then all of these banks are conflicted and can't write research (have you seen a Macquarie or Goldmans report on WSA or IGO in the last few weeks? I haven't).

We'll likely see all of the remaining analysts focus on this potential merger during WSA's Q&A session tomorrow, and Dan and Joe will have to fend off some direct lines of questioning.

The longer this speculation goes on the worse it is for IGO. As I've pointed out previously, the relative valuations for IGO and WSA are so lopsided, even at current share prices (e.g. IGO has a valuation that is 7x WSA's valuation yet it only generates ~6x the earnings).

If you think the merger happens then the clear carry trade for all of the institutions is either to short IGO and go long WSA or sell their IGO shares and buy WSA shares. Ignoring tax, if you sell your IGO shares and you use the proceeds to buy WSA shares you end up with IGO shares in the end anyway, just more IGO shares than you started with. This is why the WSA share price has been going up and IGO has been going down following the AFR leak. This is clearly bad for IGO's share price and it makes the deal economics look worse given, if they bid, it's mostly going to be in new IGO shares. The IGO/WSA share price ratio has already fallen from around 4x before the AFR leak (IGO 9.90/WSA 2.50) to around ~3x currently (IGO 9.20/WSA 3.10). So this forces IGO to accelerate discussions to either get to an agreement with a locked in exchange ratio, or they have to walk away quickly before their share price tanks any further. All of the bankers, lawyers, and advisors would know this.

I actually think the earliest time that any IGO/WSA deal gets announced is at the same time/after the IGO results. At that point both companies have then reported their full year results so this information is "cleansed" into the market. As a shareholder of both companies I think it's a very logical merger, but it needs to be done at the right price for WSA shareholders.