Sinosteel gets control, but likely to have company at Midwest
Email Print Normal font Large font AdvertisementJamie Freed
July 9, 2008
SINOSTEEL has secured majority control of Midwest after a bruising nine-month, $1.36 billion battle for control of the West Australian iron ore miner.
But it appears likely that at least 19.1 per cent of the company will escape the grasp of the Chinese metals trader, leaving a listed company similar to fellow iron ore producer Portman Mining following a failed takeover by Cleveland-Cliffs in 2005.
Midwest directors, the majority of whom have agreed to accept Sinosteel's takeover offer for their own holdings, have recommended shareholders with a longer-term investment horizon retain their shares in the iron ore miner.
That option would provide less certainty than Sinosteel's $6.38 cash bid, but would offer the potential for steep rewards. Cleveland-Cliffs offered $3.85 a share for Portman in 2005 - far below the WA miner's closing price of $16.47 yesterday.
"Cash is not a bad bet at the moment, is it?" said BBY analyst John Veldhuizen. "But others might have a longer-term horizon and see real value based on the outlook for iron ore."
He valued Midwest shares at $7 as an independent company and $9.57 if it eventually merges with Murchison and receives cost savings from combining their neighbouring planned operations.
Murchison has vowed to keep its 10 per cent stake in Midwest, in a move that would block Sinosteel from compulsory acquisition. As well the New York hedge fund Harbinger may be unlikely to accept Sinosteel's $6.38 offer in light of its entry price of $7 a share for its 9.1 per cent stake in Midwest.
The minority shareholders of Midwest will have the power to vote on major deals, such as a planned joint venture between Sinosteel and Midwest and any offtake arrangements. Midwest plans to sell half of its most advanced iron ore projects to Sinosteel at an agreed price, but that would be contingent on receiving approval from Murchison and other remaining holders.
Midwest said yesterday the completion of the pre-feasibility study, which would trigger the sales, would be delayed a month and would be released in January.
Sinosteel is understood to have crossed the 50 per cent acceptance mark - including pledged acceptances from directors - but it has not yet exercised its right to replace the Midwest board. In its bidder's statement it promised to appoint two independent directors.
Murchison and Harbinger could each increase their stakes in the thinly traded Midwest shares to 19.9 per cent on-market at a premium to the bid price, but it is understood Murchison has no plans to do so at this point.
Midwest shares closed steady at $6.38.
MIS
midwest corporation limited
