THE two iron ore plays at the heart of the Mid-West port and rail saga may end up merging after Murchison Metals launched a takeover bid for rival iron ore miner Midwest Corporation worth up to $987 million.
Midwest investors welcomed the news with the company's share price soaring $1.02 (29%) to $4.53 in morning trade with over 5 million share changing hands before midday, while Murchison's share price gained 11c to $5.19.
Murchison, who has partnered with Mitsubishi to develop iron ore and infrastructure projects in the Mid-West,decided to make an offer for Midwest, who has partnered with Yilgarn Infrastructure, after merger discussions with the Midwest board fell through.
"Murchison believes that the combination of Murchison and Midwest represents a unique opportunity to unlock cost and revenue synergies, accelerate the development of the emerging Mid-West iron ore province and provide greater certainty for the development of new Mid-West port and rail infrastructure," the company said in a statement.
Murchison said both companies would benefit from the joint development of the Jack Hill's and Weld Range iron ore projects in the Mid-West.
"These are highly complementary projects with similar ore types, located in the same geographic region and relying on the same rail and port infrastructure," Murchison said.
Under a "two-tiered" offer structure, Murchison is offering a higher price for each Midwest share if it does not incur a material tax liability by selling a 50% stake in its Weld Range and Koolanooka projects to China-based Sinosteel Corporation.
The higher price is 1 Murchison share for every 1.08 Midwest shares held, which values Midwest's shares at $4.70 each or $987 million based on Midwest's shares on issue.
If Midwest does incur a tax liability, the base price is 1 Murchison share for every 1.16 Midwest shares held which values its shares at $4.38 each or $919 million.
The higher price represents a 34% premium based on yesterday's closing price of $3.51, while the base price represents a 25% premium.
News of the offer comes after Western Australia's planning and infrastructure minister Alannah MacTiernan criticised the two parties for not coming together to build the Oakajee port and rail infrastructure to service the iron ore industry in the Mid-West.
"While neither company has proved up the regular deposits to reserve status, the companies want certainty in the way forward," she said yesterday.
"Again the Government hopes that common sense will prevail and the companies work together to deliver this project."
Murchison executive chairman Paul Kopejtka said today that recent events had made the bid's timing sensible.
"The value that can be generated by combining these companies will diminish over time as each company moves forward with separate development plans," he said.
"We believe that the time is right to give the Midwest board and all Midwest shareholders an opportunity to unlock value that neither company can deliver on its own."
Murchison expects to lodge a bidder's statement with Midwest and the Australian Securities Exchange on or before October 19.
The offer will be open for acceptance for at least a month.
Midwest's board has advised shareholders to take no action until it has had an opportunity to consider the offer and make a recommendation to shareholders.
The company's board is currently in a meeting to discuss the Murchison deal.
MMX Price at posting:
0.0¢ Sentiment: Buy Disclosure: Not Held
