Ausdrill share jumped more than 9% to $1.73 yesterday after directors recommended shareholders give the greenlight to a near $300 million acquisition from the founder of the company.
The board released a letter to shareholders yesterday unanimously recommending they vote at the AGM on October 25 in favour of Ausdrill buying underground hard-rock mining contractor Barminco in a deal worth $271 million.
The $1.71 is still lower than the $1.79 the shares hit mid-June after it revealed a loss of revenues because of changes to one project in the Pilbara and the wall collapse at the Superpit in Kalgoorlie that cut Ausdrill’s business by 35%.
The deal was announced on August 15. Shareholder approval is needed because of the presence of prominent WA mining figure, Ron Sayers on both sides of the deal.
Ratings group, S&P has said it will upgrade Ausdrill’s standing if the deal completes on the terms announced in August (https://www.asx.com.au/asxpdf/20180817/pdf/43xfgh3c2709qt.pdf).
“Ausdrill’s proposed acquisition of Barminco Holdings Pty Ltd. via a scrip offering and cash should improve Ausdrill’s scale and diversity.
“In addition, Ausdrill will raise A$250 million of underwritten equity to redeem its US$300 million senior unsecured notes, demonstrating Ausdrill’s commitment to maintaining a prudent financial policy.
“We are placing the ‘BB-‘ long-term issuer credit rating on the company and ‘BB+’ and ‘BB-‘ ratings on the company’s senior secured and senior unsecured issues, respectively, on CreditWatch with positive implications.
Ausdrill said in its statement yesterday (http://clients2.weblink.com.au/news/pdf_2%5C02018530.pdf) “The Board notes that the Independent Expert has concluded that in the absence of a superior alternative, and based on the matters outlined in its report, the Barminco transaction and the acquisition of Barminco sale interests from the Sayers Family Trust are fair and reasonable to Ausdrill’s shareholders whose votes are not to be disregarded on the relevant resolutions. ”
“The shareholder resolutions in respect of the Barminco acquisition are required due to the following factors:
The consideration for the transaction is largely equity based, with approximately 150.7 million new Ausdrill shares being issued (in addition to up to $25.4 million in cash) to Barminco vendors – the ASX Listing Rules require that shareholders approve a share issue of this size. Collectively the Barminco vendors are expected to hold 22.1% of Ausdrill post completion and escrow terms have been agreed in respect of these holdings.
Mr Ron Sayers is (indirectly) a minority shareholder in Barminco and is still considered a related party of Ausdrill given that he has been a director of Ausdrill in the previous 6 months – the ASX Listing Rules require that shareholders approve an acquisition of a substantial asset from, and any issue of shares to, a related party. Mr Sayers is expected to hold an indirect beneficial stake of approximately 3.6% in Ausdrill following completion of the acquisition.
Ausdrill confirms Mr Sayers has not been involved in Ausdrill Board deliberations in respect of the Barminco acquisition and will receive consideration for his holding on the same terms as all other Barminco vendors.”
“Barminco is one of Australia’s leading underground hard-rock mining contractors and is Ausdrill’s existing joint venture partner in the African Underground Mining Services joint venture.
“The acquisition will transform Ausdrill by creating Australia’s second largest mining services company (by revenue). The acquisition is expected to be materially earnings per share accretive for Ausdrill, with underlying pro forma FY18 earnings indicating EPS(A) accretion of over 28% (excluding synergies), enhanced operating margins and improved return on average invested capital, while maintaining consistent gearing metrics,” Ausdrill directors argued.
