game of chess - sdl vs hanlong

Negotiations are just like a game of chess. Below are a few points of interest in relation to the recent takeover bid.

HANLONG IS THE ENEMY

While a number of people felt that it was a positive move when Hanlng bought Ken Talbot's stake, I believe GJ was thinking otherwise. This is why he didnt exactly welcome them with open arms, and why he then went out and raised funds from international institutions, because he could see what they were up too. By getting more funds, he would dilute Hanlongs holding and it would provide SDL with a reserve of cash so they couldn't be bullied into a takeover by someone wanting to draw out the process.

GJ saw it coming from a mile away, and I am sure he has strategically positioned the pieces on the chess board in preperation for a takeover bid.


MEETING WITH HANLONG

Up until now, I believe that there has been a bit of a stand off between SDL and Hanlong, while each of them susses out the position of one another. Now that Hanlong has made the first move and shown part of their hand, it is up to GJ to respond and make his move. At least it has put an end to the stand of and will now allow both of them to negotiate, although I believe it is a matter of trying to remain close to the enemy.


HANLONG IS NOT OFFERING ANY PREMIUM

Hanlong say that they are offering a 25% premium to the previous share price, however their offer is based on a number of conditions, including regulatory and government approvals. I am only speculating, but I am guessing that obtaining a mining permit is part of these conditions.

Now if SDL had the mining permit in place, I would expect the share price to increase based on this information alone. So the 25% premium is not actually a premium at all, as it includes the mining permit and other things which SDL dont yet have, and therefore have not been factored into the SP.


HANLONG IS OUTLAYING MORE THAN JUST $1B

A lot of shareholders are questioning how Hanlong could offer just over $1b when we are seeking $2b+ from a strategic partner who may only get up to 50% in the Mbalam project. What you need to remember, that Hanlong isn't just prepared to pay the $1b to takeover SDL, but they will also have to find another $5b to fund development, so they are technically prepared to outlay $6b against possible strategic partners who are looking to outlay about $2b.


JUGGLING HANLONG VS STRATEGIC PARTNERS

GJ and GC need to juggle both Hanlong and Strategic Partners at the same time. On one hand they are in negotiations with Hanlong to establish a fair takeover price, but on the other hand, how they handle their strategic partners, depends on whether they have 1 or 2 serious potential partners. If they only have 1 partner, GJ will need to assure them that they are SDL's preferred option and that SDL will be fighting against a takeover. If there are 2 serious strategic partners, then GJ will have plenty of leverage to squeeze the best price out of either Hanlong or both strategic partners.

The risk is if their is only one possible strategic partner, and they drop out of negotiations due to Hanlong's takeover aspirations, then it puts Hanlong in a very strong position.


EXPECTING NEWCOMERS

The first bid in a takeover, is kind of like the first bid in a house auction, and until the first bid is made, it is difficult to work out who actually wants the house, who is just looking for value and who are just stickybeaking.

There will be people at the auction who don't even really want the house, however will still purchase it, if the price is right.

Now that the first bid has been made, I expect it will flush out a better offer, as it gives both value hunters and serious buyers a base figure to work off.


BHP, RIO and VALE

Cameroon may not form part of RIO's, BHP's or VALE's strategic plan, but you can bet your left testicle, that they will not let someone like Hanlong gain control of this asset for next to nothing, when it has the potential to eat into their dominance of the IO market. If they see this going for too cheap, they will put in an offer even if it is only a defensive move.


LET GEORGE JONES DO HIS JOB

No one knows this project better then George Jones and no one has better intentions for the project and shareholders than George Jones, so we just need to leave him do his job and trust the decisions that he makes.

It is easy for shareholders to say that 50c is too cheap, and on face value, it probably is. But if negotiations with potential strategic partners are not going to plan, or if Hanlong end up having the stronger hand, then an offer of 50c could be worth taking.

It basically comes down to a game of chess, which will be decided based on the following:

1. Who knows the game the best?
2. Who knows their opponent the best?
3. Who has the best foreseight?
4. Who has the upper hand?
5. Who gets into the strongest position first.

The game has already started, it is just a matter of what measures GJ has taken already to put himself in a winning position and what strategy Hanlong has developed in order to try and defeat him.

I think it was Sun Tzu who said "Victorious warriors win first and then go to war, while defeated warriors go to war first and then seek to win.