Another deal driven by the EV boom finally sees a sensible outcome.
As we pointed out last week there was a lot of obvious support for the idea of IGO buying nickel miner, Western Areas (WSA), even if IGO don’t think so after WSA withdrew its recommendation to shareholders to accept the bid.
Given the way nickel prices have risen since the deal was finally revealed late last year, a higher price than the 43.36 offered by IGO looked logical.
But IGO held fast and WSA had its shares suspended and worked on its suitor to open its bank accounts a little wider – which it did on Monday.
With support for the idea of a merger from two WSA shareholders in perpetual and Wyloo Metals (owned by Andrew Forrest) the logic looked right for a higher price to put the merger back on track.
So instead of the $3.36, the new price is $3.87 a share, which IGO says is its final offer price, in the absence of a superior offer (a nice out there if a bidding war erupts).
The market value of WSA rises 15% to $1.244 billion from the original figure of just over $1.1 billion.
The lift in the price is an adjustment to reflect the reality of higher nickel prices since the bid was revealed in late 2021.
The price is higher because of rising demand for the key battery material, as well as reflecting the impact of the Russian invasion of Ukraine and the banning of Russian exports (of nickel and other commodities) and the unsettled prices since the nickel contract trading debacle on the London Metal Exchange a month ago.
IGO says the revised offer of $3.87 per share represents a 56% premium to Western Areas’ share price of $2.48 on August 18, 2021, a day prior to when Western Areas announced it was in preliminary discussions with IGO about a potential transaction.
In a statement on Monday with the higher price, IGO CEO, Peter Bradford said “Since first announcing the initial scheme in late 2021, we have observed continued strong nickel price performance and the subsequent impact on valuations of companies operating within the sector.”
“Notwithstanding our view that the recent extreme trading and volatility in the nickel market will be short-term in nature, IGO recognises these higher prices have resulted in stronger financial performance from WSA compared to IGO’s assumptions at the time the initial scheme was announced in December 2021.”
After initially telling shareholders to vote in favour of IGO’s acquisition, the change and added volatility in the nickel market from early March onwards saw Western Areas consult its independent financial advisor KPMG to investigate the implications on the scheme against the change market conditions.
On April 4, KPMG produced a revised draft report (having already completed an initial report) which considered the effects of the price volatility and found that the initial deal to be “neither fair nor reasonable to Western Areas shareholders”.
Western Areas proceeded to withdraw its recommendation for its shareholders to vote in favour of the scheme. The company then asked for time to consult with IGO about the potential of an amended proposal with trading in WSA shares suspended to allow those discussions to happen.
“The Western Areas board is pleased to have negotiated an agreement with IGO considering the recent volatility in the nickel price and the positive impact this has had on Western Areas cashflow position and fundamental asset value since the initial scheme was announced on December 16, 2021,” Western Areas chair Ian Macliver said on Monday.
“Forrestania is capturing the upside in near-and-medium-term nickel prices, while Odysseus is positioned to capitalise on the longer-term nickel price driven by growth in electric vehicles.”
IGO reckons WSA will add to free cash flow from 2024 onwards. What will be watched is the spending plans IGO has for Western Area’s key nickel mines in WA.
The end result is a sensible deal looks like it will now happen and a major Australian producer of a key renewable metal will be created with some global scale and ambitions.
Western Areas shares leapt to $3.85 a rise of 5.4%.
