Shares of coal miner New Hope soared yesterday after the company said it had received several takeover proposals and revealed it will launch a formal process to assess the offers.
The shares jumped 20% in early trading and ended the day up 15.3%, or 81c, at $6.10.
Yesterday’s close valued the company at around $5.1 billion and with Washington H Soul Pattinson owning 59.7% of New Hope, Soul Patts shares finished 8% higher as well at $13.68, the highest the shares have closed in 18 months.
But that closing price yesterday is not much higher than the $5.44 the shares traded at on July 31, when it ruled off its 2011 financial year.
They were lower during the recent sell-off.
Some brokers reckon a price closer to $7 would be more realistic seeing New Hope had $1.6 billion sitting in its bank account at July 31.
New Hope raised the prospect of some possible interest in an offer at the time of the release of its 2011 profit last month, but it was drowned out by the rising volatility over Greece and the eurozone.
For that reason investors are punting on either a bid happening or some capital management activity, both of which would deliver Soul Patts a multi-billion dollar windfall.
And, shares in Soul Patts’ affiliate Brickworks Ltd (they both own shares in each other) jumped 7.5%, or 70c, at $9.95 as investors realised that the cross-shareholding links would see any cash from a bid or capital return trickle down to that company.
Some analysts say the reaction of the New Hope board to the approaches is a sign that the Soul Patts led-group (Sydney businessman Robert Millner is chairman of both companies) has decided to rationalise its complex structure.
A number of analysts and some shareholders have been pressuring the company to do just that.
Leading the attack has been fund manager Perpetual which argues the cross shareholders, especially between Soul Patts and Brickworks (they own more than 40% in each other), is depressing the share prices of both companies.
If New Hope is sold (and some brokers reckon Anglo-Swiss giant Xstrata might be a very logical bidder) it could finance a move by Soul Patts to tidy up its stakes in Brickworks, TPG, Clover Corp, Ruralco, API (Australian Pharmaceutical Industries) and several other groups.
It has already bid to take out the minorities in Soul Private Equity.
Besides its coal interests, New Hope is in the process of wrapping up a $261 million bid for Northern Energy.
And even though New Hope shares closed off its highs for the days, the market obviously believes a bid could happen.
New Hope’s board, which included chairman Robert Millner (who is also the Soul Patts chairman) obviously thinks the approaches are serious, judging by the comments in yesterday’s statements.
The board said it believed it "was appropriate to undertake a formal process to determine whether a proposal for New Hope was available at a price and on terms that were in the best interests of all its shareholders".
Selected parties would be invited to submit proposals to the board as part of the formal process.
It was expected to take several months, and may or may not result in a proposal being made or recommended by the board, the company said.
"It is the duty of the board to consider legitimate opportunities for the company which may be in the best interests of all shareholders," Robert Millner said in a statement.
"A formal process will allow the board to assess these opportunities in a considered manner, with minimal disruption to New Hope’s day-to-day business activities."
New Hope owns the New Acland mine, about 150 kilometres west of Brisbane, and the West Moreton mines 23 kilometres west of Ipswich.
It said last month it planned to double output over the next five to seven years, after reporting a full year profit of $503.1 million, a figure that was boosted by the one-off profit from selling its stake in Arrow Energy to Shell and PetroChina during the 2011 financial year.
New Hope’s activities cover a diverse range of interests.
It says, "Coal operations are our main business with three open cut mines – New Acland, Jeebropilly and New Oakleigh – located in South East Queensland, producing thermal coal supplied to a wide range of domestic and export customers.
"The New Acland Project is the proposed third stage of the New Acland coal mine, located about 40 kms north west of Toowoomba in south east Queensland’s Darling Downs region.
"The project will produce up to 10 million tonnes per annum of thermal coal and will include a land management program conducted by our pastoral company.
"This program will ensure that mining lease areas are returned to agricultural and conservation uses progressively during the project."
New Hope also has interests in exploration and port facilities.
The company says that about 65% of its coal sales are exports to customers in a number of countries in the Asia-Pacific area, with the remaining 35% being sold domestically for electricity production and to a wide variety of general industry processors and manufacturers.
New Hope exports its coal through its 100%-owned export ship loading facility at Queensland Bulk Handling (QBH) in the Port of Brisbane.
And there’s no certainty of a bid happening cheaply because Mr Millner warned in yesterday’s statement:
"If a proposal is not put forward which appropriately reflects New Hope’s strategic value and growth prospects, the Board is very confident that New Hope will continue with its strategy to grow as a company and create shareholder value." With nearly 60% of New Hope, M
