Midwest to seek talks with Sinosteel 7th June 2008, 12:00 WST...

Midwest to seek talks with Sinosteel

7th June 2008, 12:00 WST

Midwest Corp last night put on hold its $3.2 billion merger bid with Murchison Metals while it sought talks with rival suitor Sinosteel Corp to try to reach a compromise in the drawn-out takeover battle.

Battered by a surprise surge in acceptances to Sinosteel’s $6.38 cash offer that has potentially killed the Murchison merger plan, Midwest emerged from a board meeting in Perth yesterday restating its in-principle support of the merger but accepting it first needed to strike a deal with the Chinese steel group.

It remains unclear what deal Midwest wants to strike or whether it even has any power to force Sinosteel to the negotiating table, given that the Chinese suitor had amassed a 40.1 per cent holding by yesterday morning and was expected to gain further acceptances.

Sinosteel’s increasing stake in Midwest is almost sufficient to not only seize control of Midwest, but also to scupper the Murchison merger proposal at a forthcoming Midwest shareholders vote.

In an attempt to rescue the Murchison merger deal, Midwest may offer Sinosteel some iron ore offtake rights in exchange for a commitment that the Chinese group votes its stake in favour of the contentious share-swap merger at the yet-to-be scheduled meeting.

Sinosteel is widely regarded as being more interested in securing control over Midwest’s proposed output from various Mid-West projects, including Weld Range, than achieving full ownership of the iron ore aspirant’s equity.

“Given the importance of Sinosteel’s vote, Midwest will not enter into a merger implementation agreement without first discussing the matter with Sinosteel, nor commit Midwest to the merger without shareholder approval,” Midwest said in a statement. “(But) Midwest’s board wishes to reaffirm that it sees great strategic benefit in a merger with Murchison.” Midwest’s change in direction yesterday appeared to catch both Murchison and Sinosteel off guard. Both said they had noted the Midwest announcement but would not elaborate beyond each restating their objectives to achieve their respective proposals.

Midwest shares added 6¢ to $6.50 yesterday, remaining above Sinosteel’s offer but below the $7.17 implied value of the Murchison merger.

Attention will increasingly focusing on what Midwest deputy chairman David Law wants to do with his 13.2 per cent stake, given his Malaysian associates are gradually selling into Sinosteel’s offer.

Sinosteel’s offer closes on July 18.