So, we are a week out from receiving our next sliver of...

So, we are a week out from receiving our next sliver of information. Maybe I’m being too harsh, but this “takeover” process feels like it is some form of Chinese time torture. And we are not done yet.

So where to from here?

Based on what we have seen with the acquisition of the Molopo acreage and based on WCL’s own circumstances, it seems to me that there are six elements that will determine the timing of the takeover (if one happens at all). These elements are (and I am assuming we are dealing with the Chinese here):
• The time actually required to complete due diligence;
• The requirement for FIRB approval;
• The requirement for NDRC approval;
• The Christmas break;
• Chinese New Year;
• Any dealings with Mitsui which the Chinese may require to be settled pre-takeover.

Discounting the last point, which may or may not be on the agenda for our Chinese friends at this point in time, I can see a scenario where the Chinese complete due diligence next week as planned and then apply for FIRB approval (which may or may not be completed by Christmas) and then apply for NDRC approval (which may or may not be impacted by the Chinese New Year holidays). Then comes the binding takeover offer – maybe at the end of January or in February (or even March given the 11 weeks taken to get FIRB and NDRC approvals for the Molopo assets). I’m not well versed in Australian takeover procedure and am happy to be corrected if any of the above can be short circuited in some manner (it may be that NDRC already pre-approved the acquisition of WCL when it approved the Molopo asset purchase).

However, I recall a post here on Hotcopper about comments made by WCL management at the AGM that prices for WCL-type assets have fallen over the past year. Based on this trend continuing, it would appear that the Chinese have nothing to lose by continuing to draw the acquisition process out as long as possible – so maybe the timetable set out above is too optimistic. This is especially so given that LNG now have until June 2013 to get all their necessary gas supplies in place in respect of the Gladstone Ports (I can’t help but thinking that if the Gladstone Ports had put its foot down in September and stuck to their 31 December deadline this process would all be finished by now...).

You can probably tell that I think there is a reasonably high probability that a takeover will occur, and you’d be right. In respect of the price – this is a different matter. In theory we have an indication of 52 cents per share. I would like to think that:
A. It won’t go lower because it would be a bad look for the Chinese and I believe it would alienate them from the WCL shareholders; and
B. The directors may be able to argue it up to, say, 65 cents on the basis that the majority of shareholders won’t entertain 52 cents but 65 cents is something that the directors could likely sell to shareholders.

So what about a completing offer? I had been on the mind that if one was going to happen, it would have happened by now – especially if it was an Australian acquirer who did not need FIRB approval as they would have been able to significantly wrong foot the Chinese given the time I believe is required by the Chinese get themselves into a position to make a binding offer themselves.

But I’ve changed my mind on this due to the material (which I assumes has previously been held back prior to the 20 November announcement) effectively being exclusively available to the Chinese for the current three week period. Any alternative bidder is likely to want to see this material if they have previously been undertaking due diligence on WCL prior to 20 November and will wait for the exclusivity period to end next week to see this material prior to making a bid. Of course all of this is all conjecture and relies on an alternative bidder actually being interested in the company - there may be none – and we really don’t know.

Anyway, keen to hear thoughts on the above as it is better than watching the clock.

And a last request to the Directors – please do not allow the current due diligence period to go on past 10 December – enough is enough.

Watching in the West
Coaster