Brockman Resources continues to recommend shareholders not to accept a takeover from Wah Nam International, after the Hong Kong investment house declared its offer unconditional.
Brockman Resources continues to recommend shareholders not to accept a takeover from Wah Nam International, after the Hong Kong investment house declared its offer unconditional.
Brockman said it held "significant concerns" regarding recent trading in its stock and the circumstances surrounding recent offer acceptances, resulting in Wah Nam's current voting power.
At the time of the announcement, Wah Nam had gained 42.07 per cent of Brockman, but acceptances by Brockman shareholders with registered addresses in Australia account for only 0.12 per cent of the total shares on issue.
The majority of acceptances have originated from off-shore investors located in Hong Kong or Singapore.
"Brockman and its advisers are continuing to investigate these matters to consider whether further regulatory action may be warranted," Brockman said in a statement to the ASX.
The company also said the offer undervalued Brockman's shares, with its implied value representing a 5 per cent premium to Brockman's closing share price on May 6.
Brockman said it was concerned Wah Nam had not demonstrated the ability to source development funding or provide a complete infrastructure solution.
Brockman's full announcement can be found below:
BROCKMAN CONTINUES TO RECOMMEND SHAREHOLDERS DO NOT ACCEPT THE WAH NAM OFFER
Key Points:
Brockman notes that Wah Nam has declared the offer for Brockman shares unconditional
Brockman Directors continue to recommend shareholders DO NOT ACCEPT Wah Nam's offer
Offer undervalues Brockman shares - Implied value of the offer represents only a 5% premium to Brockman's closing share price on Friday 6 May and is only an 8% premium to the price of Brockman shares immediately prior to the announcement of Wah Nam's offer in November 2010.
Wah Nam has not demonstrated any ability or plan to source project development funding or to provide a complete infrastructure solution, as outlined in their letters to Brockman shareholders
Low liquidity in the trading of Wah Nam shares (both on the ASX and Hong Kong Stock Exchange) will limit the ability of Brockman shareholders to realise the value of Wah Nam shares they will receive if they take-up the offer
Brockman has significant concerns about the underlying value of Wah Nam shares being offered toBrockman shareholders based upon their intrinsic valuation and the potential for further dilution of Brockman shareholder's interests (if Wah Nam's offer for FerrAus is also completed)
Brockman has serious concerns with regard to the pattern of recent trading activity in Brockman shares and acceptances of Wah Nam's offer - Brockman is continuing to investigate these matters and the requirement for further regulatory action, including seeking an ASIC investigation.
Of the acceptances to date, the majority of those acceptances have originated from off-shore investors located in Hong Kong or Singapore. Acceptances by Brockman shareholders with registered addresses in Australia account for only 0.12% of the total Brockman shares on issue.
The Directors of Brockman Resources Limited (ASX: BRM - "Brockman" or "the Company") note the announcement made by Wah Nam International Holdings (ASX: WNI - "Wah Nam") on Friday 6 May stating:
- Wah Nam has declared its offer for Brockman shares contained in its replacement Bidder's Statement dated 6 December 2010 "free from all defeating conditions" such that the offer is unconditional; and
- Wah Nam's voting power in Brockman at the time of the announcement was stated as 42.07%.
As Wah Nam has declared its offer unconditional, Wah Nam is required to complete those offers that have been accepted by issuing Wah Nam shares to accepting Brockman shareholders in accordance with the terms of its offer.
The Brockman Directors reiterate their recommendation that shareholders who have not yet accepted Wah Nam's offer DO NOT ACCEPT the offer as:
- the Directors do not believe the offer represents appropriate value for Brockman shares;
- Wah Nam has not demonstrated an ability or plan to source the funding required to develop the Marillana Project or the proposed rail and port infrastructure;
- the liquidity of the market for Wah Nam shares in Hong Kong and Australia is limited; and
- Brockman has significant concerns regarding recent share trading activities in its stock and the circumstances surrounding recent acceptances into the offer, resulting in Wah Nam's current voting power.
Notwithstanding the takeover bid process, the development of the Marillana Project and all associated design, approvals and infrastructure development plans have progressed significantly. The Brockman team has worked diligently towards its development timeline and project deliverables. This has included the progression of the Front End Engineering Design ("FEED") work, the correlation and assessment of mining, processing, logistics and financing details for the Bankable Feasibility Study, and receipt of the final State Approvals for Marillana's environmental development plans.
Negotiations with Fortescue Metals Group ("FMG") will continue to be progressed, but are unlikely to be concluded prior to the close of Wah Nam's offer.
Underlying value concerns
The current implied offer price for Wah Nam's bid, based on the closing price of Wah Nam on the Hong Kong Securities Exchange ("HKSE") on 6 May 2011 is A$5.12 (equivalent) per Brockman share. This is only 5% above Brockman's closing share price of A$4.85 on 6 May, and only 8% above the Brockman share price of A$4.74 on 10 November 2010, prior to the announcement of the Wah Nam offer. The Wah Nam closing price on the ASX on 6 May 2011 was A$0.17, which equates to a bid offer of only A$5.10 per Brockman share.
Additionally, the Brockman Directors note that the current implied offer of A$5.12 is at a discount of 12.4% and 10.8% respectively to the 90 and 180 Day volume weighted average prices for Brockman shares of A$5.82 and A$5.72 respectively. Brockman has also traded as high as A$6.25 during the month of April.
As set out in Brockman's Target's Statement, the Board of Brockman has concerns about the underlying value of Wah Nam shares. Set out below is a chart which assesses the intrinsic value of Wah Nam shares based on the book values of Wah Nam's Damajianshan mine, limousines and shuttle business and cash balance as at 31 December 2010, and the market value of Wah Nam's interests in Brockman and FerrAus as at 6 May 2011, assuming that a further 857,335,050 Wah Nam shares are issued in consideration for the 28,577,835 Brockman shares that have accepted the Wah Nam offer (30 for 1 ratio).
Liquidity concerns
As referred to in Brockman's Target's Statement, the liquidity of Wah Nam's shares remains a major concern as it will limit the ability of accepting Brockman shareholders to realise value for Wah Nam shares that will be issued to them. This is evidenced by the low trading volumes of Wah Nam shares on the ASX in which only 5.6 million shares have traded since listing representing 0.1% of the total shares outstanding for a total value of A$1.1 million. On the Hong Kong Stock Exchange ("HKSE") A$77 million, or 391 million shares have been traded,
representing less than 10% of its issued volume of shares since the offer was announced on 10 November 2010.
Dilutionary impact of FerrAus offer
The Board also notes Wah Nam's announcement last week in relation to its contemporaneous takeover bid for FerrAus Limited ("FerrAus"), in which Wah Nam stated that it would waive the 90% acceptance condition relating to the FerrAus offer if it received acceptances giving it a relevant interest of 50% or more.
Brockman shareholders should be aware that there is the potential for dilution of Brockman shareholders' interest in the Marillana Project if Wah Nam's offer for FerrAus is completed. In the event of all shares in both Brockman and FerrAus being acquired by Wah Nam under the existing offer terms, approximately 4,621,818,732 Wah Nam shares would need to be issued, of which 1,248,146,352 shares or 15% of the total number of shares on issue within the new identity would be issued to FerrAus shareholders. This share issuance would result in Brockman shareholders being diluted down to a 39% interest in the Marillana project through their interest in the combined group.
Trading activity and acceptance pattern concerns
Brockman has serious concerns regarding some of the recent trading activity in Brockman shares and the pattern of acceptances of Wah Nam's offer.
Earlier this year Brockman brought proceedings against Wah Nam in the Takeovers Panel in relation to certain matters relating to its takeover offer and an alleged association. Although the Panel did not conclude that there was sufficient evidence for it to conclude the association existed, it commented that there "may be new circumstances if some or all of the shareholders identified in the application accept Wah Nam's bid such that it enables further inferences to be drawn and they support an association."
Given Brockman's concerns regarding recent trading activity and acceptance patterns, in order to seek to ensure that the interests of minority shareholders in Brockman are protected so far as is possible, Brockman and its advisers are continuing to investigate these matters to consider whether further regulatory action may be warranted. Brockman has been sharing its information with ASIC.
Finally, given the current level of acceptances of Wah Nam's offer for Brockman, in addition to the Brockman Board's recommendation in relation to Wah Nam's offer, shareholders should consider the benefit and risks of remaining as a minority shareholder in Brockman compared to the benefit and risks of accepting Wah Nam's offer or selling on market. The Brockman directors recommend that shareholders reject the Wah Nam offer and do not currently intend to accept the Wah Nam offer in respect of their personal holdings in Brockman.
