By the time Wesfarmers abandoned its UK home hardware adventure called Homebase, the Perth based giant had run up losses of well over $1 billion.
No more said the company as it changed CEO and senior management, then selling off its remaining coal mining assets in NSW, spinning-off Coles, quitting its stake in Quadrant Energy and disposing of KMart Tyre and Auto.
The new management promised it would be more circumspect in its future expansion plans and that was accepted by the market.
But yesterday that was thrown into question when the company revealed plans to make a $1.5 billion offer for troubled rare earths miner Lynas Corp.
And investors gave an initial thumbs down, pushing the shares down 3.5% to $33.81 from $35.03 on Monday (which was higher than before the Coles spin-off in November)
Adding to the market scepticism the $2.25-per-share all-cash offer price is a massive 44.7% to Lynas’ share price before the start of trade on Tuesday of $1.555.
Lynas shares leapt 34% to $2.09 when trading resumed after an initial halt. The shares jumped to a high of $2.17, well short of the offer, then settled back. they ended up 35% at $2.10.
The suggested offer price is well under the five year higher for Lynas shares of $2.76 hit 10 months ago, before the company’s Malaysian processing plant ran into problems with the government.
Lynas directors described the Wesfarmers offer in the usual terms – “The Indicative Proposal is unsolicited. In addition, the Indicative Proposal is highly conditional, indicative and non-binding.” They told shareholders to do nothing.
Wesfarmers CEO Rob Scott said an investment in Lynas would leverage Wesfarmers’ assets and capabilities, including in chemical processing.
“We also acknowledge the importance of the Lynas Advanced Materials Plant in Malaysia and the strong contribution made by Lynas’ management team and its employees across all operations,” he said.
But there was no strong arguments advanced in favour of a deal like this – Wesfarmers said that was because it was an indicative bid, but some investors think the company should explain itself in more detail after the Homebase adventure in the UK failed and triggered big losses and write-offs.
Wesfarmers said the deal would be contingent on a number of factors, including whether Lynas licences in Malaysia will remain in force for long enough after the acquisition. In its statement Wesfarmers said:
“The proposal is conditional on, among other things, entry into a Process Deed to govern Wesfarmers’ due diligence and the negotiation of a binding Implementation Agreement between the parties. Wesfarmers is seeking to negotiate a Process Deed with Lynas. Any transaction would remain subject to various matters including:” completion by Wesfarmers of its due diligence investigations; negotiation and execution of an Implementation Agreement, for approval by both Boards; ensuring that relevant operating licences in Malaysia are in force and will remain in force for a satisfactory period following completion of the transaction; and securing regulatory approvals for the transaction, Lynas shareholder approval, Court approval and meeting other customary conditions.
“There is no certainty that the Indicative Proposal will lead to an agreed transaction,” Wesfarmers cautioned.
And there are probably quite a few Wesfarmers shareholders who hope that is the case given the $1 billion or losses from the Homebase hardware adventure in the UK.
