|Aurizon-Baosteel offer 'not fair,' Aquila says
WA mining business Aquila Resources has advised its shareholders to accept a $1.1bn offer from Chinese steelmaker Baosteel and Queensland-based rail haulier Aurizon, despite saying that the price is not a fair one.
An independent expert appointed by Aquila following the bid from Baosteel and Aurizon in early May has told the resources company's board that the $3.40 per share offer is not a fair valuation of the business.
Instead, the expert assessed that the value of Aquila on a 100% controlling interest basis ranges from $3.90 to $5.24 per share, Aquila passed on to the market last week.
That means Baosteel and Aurizon's bid is roughly 13% below the low point and 35% below the high point of the expert's assessment.
Nonetheless, the advisor said that given current market conditions, and what might happen to Aquila's share price should shareholders reject the offer, the $3.40 per share bid is a reasonable one.
Aquila has therefore recommended its shareholders accept the offer.
Aurizon, which until now has done its business mainly on the east coast, primarily in Queensland, would own a 15% share in Aquila Resources, should the bid result in 100% ownership for the bidding partners. Baosteel already owns 19.8% of Aquila, and plans to buy another 65.2% of the company, leaving the remaining share for the Australian rail haulier.
Aurizon is interested in the rail side of the key project in Aquila's portfolio: the West Pilbara Iron Ore project. Key to that project would be the construction and operation of a 245km rail line between the iron ore mine and a proposed export facility at Anketell, south of Port Hedland.
Aquila's independent expert's response to the offer came after the board judged Baosteel and Aurizon's bid superior to an off-market takeover bid lobbed in June by Mineral Resources (MRL).
This was despite the fact that MRL's bid was, technically, worth more per share: the ASX listed MRL was offering Aquila an all scrip bid – meaning payments would be made in the form of MRL shares – to a value equivalent to $3.75 per Aquila share.
"The proposal contemplated a conditional off-market takeover offer for Aquila, with the consideration to consist solely of MRL shares at a value equivalent to $3.75 for each Aquila share," Aquila detailed when it initially announced its decision to accept the Aurizon/Baosteel bid last month.
"The proposal was expressed to be confidential, indicative and non-binding, and subject to a number of conditions. The proposal indicated that any subsequent offer would also be subject to a number of conditions."
Aquila and Mineral Resources met behind closed doors to try to reach an agreement that both sides were happy with, but none came to pass.
"Aquila's Independent Board Committee has therefore formed the view that it is not able to recommend the proposal [from Mineral Resources] as, taking into account all aspects of the proposal, it was not considered superior to the current cash offer made by Baosteel Resources and Aurizon," Aquila said.
"Discussions between Aquila and MRL have ceased."
Tony Poli, Aquila's chief executive who owns 28.92% of the business which he says he plans to sell, said the offer from Baosteel and Aurizon was the best one on the table, and that other shareholders should accept it.
"As we said we would at the outset, we have given thorough consideration to the Baosteel and Aurizon offer and, on balance, we have come to the view that Aquila shareholders would be better off accepting in the absence of a superior proposal," he said.
When Baosteel and Aurizon made their joint offer to Aquila in May, they said they intend to build Aquila's Pilbara assets into a multi-user rail and port export operation.
For a rail operator like Aurizon, with most of its eggs in the east coast coal basket, a multi-user Pilbara port and rail operation to rival those of the big three miners is a mouth-watering diversification option.
"This project has potential to deliver new independent, multi-user rail and port infrastructure that would create new options for mid-tier miners and increase competition for bulk logistics delivery in the Pilbara," Aurizon chief executive Lance Hockridge said back in May.
"This proposal represents an unprecedented opportunity to co-develop world-class rail and port infrastructure in Australia, utilising Chinese and Australian capital, to deliver much needed Australian commodities to China.
"There is an excellent strategic fit for both companies," he continued. "It would allow Aurizon to capitalise on expertise as a builder and operator of nationally significant export supply chains, matched with the ongoing investment in Australian resources by one of China's largest iron and steel producers."