ext warns on china takeover bid

Extract Resources warns on China takeover
bid

Sara-Jane Tasker From: The Australian March 10, 2011 12:00AM

EXTRACT Resources has warned that its minority shareholders could be disadvantaged if Australian regulators allow a state-owned Chinese company to proceed with a takeover bid for Extract's largest shareholder.
The day after China's CGNPC Uranium Resources made an offer for Kalahari Minerals, which has 43 per cent of Extract, the independent directors of the Perth-based Extract told shareholders it believed the offer should either be blocked or the Chinese company forced to make an offer for Extract shares on equivalent terms to the Kalahari offer.

Analysts have estimated that China's offer for Kalahari would value Extract at about $2.8 billion, or $10.69 a share. The market appears to have priced in a full bid, the stock closing yesterday at $10.73, up 8 per cent on the day.

Because of Kalahari's strong interest in Extract, CGNPC is seeking relief from the Australian Securities & Investments Commission to acquire a relevant interest in more than 20 per cent of Extract. But the company's independent directors said they would make a submission to ASIC asking that CGNPC's request not be granted, or -- if it is granted -- only on the condition that CGNPC's "offer for Kalahari only proceeds if all Extract shareholders are afforded the opportunity to have effective benefit of (the) offer on no less than equivalent terms to those offered to Kalahari shareholders".


The Chinese group's all-cash offer for Kalahari is for pound stg. 2.90 a share, valuing the junior at pound stg. 756 million ($1.2bn).

Rio Tinto has been tipped as a potential counter-bidder, as it not only has an 11.5 per cent stake in Kalahari and a 14 per cent interest in Extract, but its massive Rossing uranium mine in Namibia neighbours Extract's Husab project.

Extract and Rio were finalising talks about a joint venture to develop the junior's project when China moved on Kalahari.

"The danger for Extract is that CGNPC might prefer Rio Tinto to operate the project (between them they could own 57 per cent of Extract), potentially marginalising Extract's minority shareholders," BMO Capital Markets analyst Edward Sterck said.

Japan's Itochu also has a significant interest in China's bid, because it has 10.3 per cent of Extract and 14.9 per cent of Kalahari.

Kalahari's board is supporting the Chinese deal, saying the involvement of CGNPC would benefit all Husab stakeholders.