Chinese metals trader Sinosteel says it will not increase its offer for iron ore prospector Midwest Corp beyond $6.38 a share.
In an update on its bidder’s statement, the Chinese company said yesterday that it would not move, thus ending speculation that it might try and lift the price to offset the implied $7.36 offer from the reverse takeover by Midwest for rival Murchison.
Midwest has received a competing $1.65 billion all-share offer from fellow Australian prospector Murchison Metals, which has an implied value of about $7.36 a share and which it has recommended.
The bid from Murchison was structured as a reverse takeover to remove the chances that Sinosteel would use its 19.9% stake in Midwest to block the bid. Sinosteel has around 2.8% of Murchison.
The structure of the bid will see Murchison shareholders voting by a simple majority on the deal.
But some brokers say Sinosteel will wait until the merger goes through and then build on its 9% stake to take a substantial and possibly controlling stake.
With more than 12% of Midwest’s issued shares changing hands over the past two days, someone is either building a stake, or hedge funds are getting pretty aggressive. With Sinosteel ruling out a higher offer, it will be interesting to see what happens to Midwest shares today.
Midwest and Murchison are two of the biggest beneficiaries of China’s strong demand for steel, which has set the iron ore market alight, driving prices up and stirring interest in resource-rich areas such as the Pilbara and the Mid-West region of Western Australia, which is inland of Geraldton.
Midwest had rejected an earlier Murchison offer, but backed the latest one while also maintaining its recommendation on the sweetened offer by Sinosteel.
Sinosteel said in its statement yesterday that it would extend its offer until June 13.
Midwest shares rose 1c to $7.04 today, while Murchison was down 3.6% at $4.08 but recovered a touch to close off 9c at $4.14.
Analysts do not expect Sinosteel to walk away from Midwest, which, along with Murchison, is battling to lead the development of a rich iron ore province in Western Australia and weaken the dominance of BHP Billiton and Rio Tinto.
Sinosteel has a joint venture with Midwest and holds a 19.9% stake in it as well as holding 2.4% of Murchison.
Sinosteel is trying to buy an 8% stake in Fortescue Metals Group from a US investor, Harbringer.
So far it has been unsuccessful.
Fortescue shares dropped yesterday after the strong run up on Tuesday on the Sinosteel speculation after the Murchison-Midwest deal was revealed.
Yesterday Fortescue shares eased 27c to $10.32.
Meanwhile in a second statement, released around 5 pm yesterday, Sinosteel said its $6.38 offer was final and claimed that the Murchison deal with Midwest would fail.
Sinosteel left a very big hint that it might take legal action to frustrate the deal by saying that it thought the structure adopted of a reverse takeover was designed to frustrate the rights of a minority shareholder in Midwest (Sinosteel).
Sinosteel said it would "vigorously assert its rights on these issues" holding out the prospect of legal action to come.
