GLOUCESTER Coal's independent directors are expected to give the green light this week to Chinese firm Yanzhou Coal's bid to create an $8 billion coalminer through a merger, with final details on the deal tipped to reveal a higher offer.
Gloucester's board is expected to meet this week to sign off on the positive recommendation from the independent directors, and 64.5 per cent shareholder Noble Group is expected to announce its support of the deal as early as today.
Yanzhou Coal, through its Australian subsidiary, Yancoal, launched a $2.1bn cash and scrip offer for Hunter Valley-focused Gloucester Coal on December 23, with an implied offer of $10.16 a share.
Yanzhou offered Gloucester shareholders $3.20 cash per share and 23 per cent of a newly listed company that would combine Gloucester's assets with most of Yanzhou's Australian mines.
Gloucester's board supported the principle of combining the two groups' assets, but it had reserved its official recommendation subject to due diligence and an independent expert's report, the results of which will be released this week
The miner said last week it would update the market this week on the deal, which would create Australia's biggest listed pure-play coal company. The Australian understands the positive recommendation of Gloucester's independent directors follows a slight adjustment in the merger ratio, which will mean Yanzhou will have less than the 77 per cent of the new entity previously agreed to.
The adjustment could also include an immaterial lift in the cash component of the deal.
Yanzhou, China's fourth-biggest coal company, has until the end of this year to reduce its stake in a listed entity to less than 70 per cent to comply with undertakings given to the Foreign Investment Review Board after its 2009 acquisition of Felix Resources.
Gloucester's directors have said upfront there is good reason to combine the businesses, but there have been questions about the value because it is difficult to price Yanzhou's unlisted assets.
The release of the independent expert's report this week is expected to alleviate any concern, leading to unanimous support of the deal, which also includes a protection mechanism for minority shareholders.
Yanzhou is offering Gloucester's minority shareholders contingent value rights that would pay back any difference, up to $3, between the share price of the new company and the $6.96 implied value of the scrip portion of the bid.
Yanzhou, one of the largest listed coal companies globally, had been seeking a listed vehicle to meet Foreign Investment Review Board requirements.
After closely examining Australian miners, it targeted Gloucester and started with with an approach to Noble.
Hong Kong trader Noble Group has been known to be a willing seller since it was forced to take majority control of Gloucester in May 2009 when the coalminer tried to merge with Whitehaven Coal. Noble then tried to reduce its holding in Gloucester, as it sees itself as a major shareholder in miners, not an owner and operator
GCL Price at posting:
$8.20 Sentiment: Hold Disclosure: Not Held
