Midwest and Sinosteel may strike up a support deal
June 07, 2008 The Business Australian
TAKEOVER target Midwest Corporation is set to break the ice with hostile suitor Sinosteel in what could lead to the Chinese company supporting Midwest's proposed merger with Murchison Metals.
Sinosteel finished its best week in its complex takeover bid for Midwest with a stake of 40.1 per cent of the company after a clutch of Malaysian shareholders broke ranks with influential shareholder and Midwest deputy chairman David Law.
Sources close to the deal said that although Sinosteel was on the verge of securing management control of Midwest, it would be a hard grind for it to breach the 50.1 per cent threshold because the market still continued to value Midwest shares at more than its $6.38 offer price.
Sinosteel extended the offer yesterday to July 18, giving the Chinese metals company time to negotiate with Midwest on a way forward for its offer.
Midwest told shareholders yesterday to take no action in relation to the bid.
Insiders said backers of the proposed Murchison merger had been supporting Midwest scrip in the market to ensure Sinosteel was unable to buy more on market, and that support for the Sinosteel offer had dried up.
Sinosteel needs to control at least 50.1 per cent of Midwest issued capital to kill off the merger deal.
In a statement issued late last night, Midwest said that given Sinosteel had built the 40.1 per cent stake, it would not enter into a merger implementation agreement with Murchison "without first discussing the matter with Sinosteel".
Sources said Midwest might be willing to strike a deal with Sinosteel under which Sinosteel would take all offtake from its Weld Range and Jack Hills projects in the West Australian Mid West region in return for Sinosteel's support for the Murchison merger.
Although Sinosteel controls 40.1 per cent of Midwest, there is an equal stake in Midwest controlled by pro-merger parties if the Mr Law's 13 per cent stake in the company is included.
The Midwest board has backed the merger, which has an implied value for Midwest scrip of $6.61, based on Murchison's share price of $3.80 at the close of trading on June 5.
A Sinosteel spokesman said the company was buoyed by the way it had almost doubled its stake in Midwest during the week.
"We note the Midwest statement about the update regarding the Murchison Metals merger proposal," he said.
"We reiterate that the company's focus remained on securing control of Midwest. We are hopeful that more acceptances will come through."
Murchison lifted its resource estimate yesterday for its flagship Jack Hills project in the West Australian Mid West through an adjustment to its cut-off grades for the iron ore.
Using a revised cut-off grade of 50 per cent iron, the direct ship ore content for Jack Hills (material that requires little refining before shipping to customers) now stood at 96 million tonnes grading 59.1 per cent iron.
It provides for an extra 17 million tonnes of material and brings Murchison into line with the resource calculation methodology used by Midwest.
Murchison shares closed up 10c to $3.90 and Midwest scrip was up 6c to $6.50.
How convenient. What's the bet that Sinosteel wooed over those Malaysian Shareholders with promises that they would support the merger and end up with a major stake of both companies, therefore removing the risk of them not getting the Port and Rail Deal.
MIS Price at posting:
0.0¢ Sentiment: Hold Disclosure: Not Held
