Fairstar Resources Ltd has rebutted negative claims made by iron ore explorer Golden West Resources Ltd last week concerning Fairstar's takeover bid for the company.
Fairstar Resources Ltd has rebutted negative claims made by iron ore explorer Golden West Resources Ltd last week concerning Fairstar's takeover bid for the company.
Fairstar, a gold, base metals, uranium and oil and gas explorer, has offered Golden West shareholders five of its shares for each Golden West share.
Fairstar's Offer remains open until December 13.
The full Fairstar announcement appears below:
Fairstar Resources Limited (ASX: FAS) (Fairstar, the Company) provides the following rebuttal of Golden West Resources' Limited (ASX: GWR) (Golden West) Target's Statement, released on November 27, in respect of Fairstar's takeover bid for Golden West.
Specifically Fairstar provides the below response to the reasons provided by GWR's independent directors recommendation to reject Fairstar's Offer, as set out in the Target's Statement.
REASON 1: Fairstar's Offer doesn't reflect the true value of Wiluna West Project
Fairstar response: The Target's Statement notes that the volume-weighted average price of Fairstar shares during the last 12 months is $0.94, whilst the corresponding figure for GWR shares is $2.27. Fairstar is currently offering five Fairstar shares for every one GWR Share, so on this basis GWR shareholders would be receiving $4.70 ($0.94 x 5) for each of GWR share - a very substantial premium to the current market price.
The independent expert's report prepared by PricewaterhouseCoopers Securities Ltd (PwC) submits that the Offer is unfair, having assessed the value of GWR Shares at $2.92. However, PwC concedes that "It is difficult to value GWR shares on a controlling interest basis with a high degree of precision" and goes on to note that "our assessment of the market value of GWR shares has involved a high degree of professional judgement".
PwC also states that GWR's share price has not been affected by takeover speculation after 4 September 2007. Fairstar believes that, on the contrary, GWR's share price is being supported by Fairstar's takeover bid and that the share price may well fall if its bid is unsuccessful.
REASON 2: The Offer is dilutive to GWR shareholders
Fairstar response: Fairstar has world class exploration projects in the areas of gold, oil and gas, and uranium, so GWR shareholders who accept Fairstar's offer will enjoy the benefits of investing in a diversified mining house.
As Fairstar has continually stated, maximising the combined assets of the two companies for the benefit of shareholders is the prime motivation in proposing its bid for GWR.
REASON 3: Capital gains tax payable by GWR's shareholders
Fairstar response: Fairstar continues to urge GWR shareholders to seek their own tax advice rather than rely on general comments in the Target's Statement.
GWR implies that shareholders who accept Fairstar's Offer and realise a capital gain will incur an immediate tax liability and may be forced to sell a portion of the Fairstar shares they receive in exchange for their GWR shares in order to meet this liability.
This ignores the fact that any tax liability that might arise would not crystallize until the shareholder had received a tax assessment following the lodgement of their 2007/08 tax return. In most cases, this is unlikely to be until the second half of 2008, at the earliest.
REASON 4: The value GWR shareholders will receive is uncertain
Fairstar response: The Target's Statement says that Fairsatr has low liquidity and there is no guarantee that the value indicated by Fairstar will be achievable by GWR shareholders who accept the Offer and wish to sell their holdings to realise cash.
Comments about the liquidity of Fairstar shares is contradicted by Figure 2.1.3 on page 9 of the Target's Statement, which implies that the average daily number of GWR shares traded on the ASX during the last 12 months was approximately 137,000, whilst the corresponding figure for Fairstar shares is approximately 248,000 - indicating a robust level of liquidity.
REASON 5: The acquisition may trigger $43.55 million in transaction costs
Fairstar response: Reason No. 3 notes that because GWR shareholders representing 27.85% of the company's issued capital have undertaken not to accept Fairstar's offer, Fairstar will be unable to achieve the 80% acceptance level necessary to ensure that accepting shareholders will be entitled to capital gains tax rollover relief.
At the same time in Reason No. 5 GWR warns of the substantial transaction costs that Fairstar will incur if it is successful in achieving 100% ownership of GWR. The two reasons given by GWR are mutually contradictory.In addition, Fairstar has in place an underwriting agreement with Findlay & Co Stockbrokers for up to $25 million for transaction costs that may arise from the takeover transaction.
REASON 6: The takeover will not bring any synergies or cost savings
Fairstar response: Fairstar believes synergies and cost savings will be achieved by reducing compliance costs of two publicly listed companies. As well synergies and cost savings are likely to be able to be achieved at all other levels of the companies. This will allow the merged entity to concentrate on delivering value for its shareholders.
REASON 7: The takeover will not result in an increase in scale or diversification
Fairstar response: This statement is entirely subjective.
As stated in the Bidder's Statement, Fairstar believes that combining Fairstar and GWR will create a diversified mining house with greater market liquidity and enhanced capital raising capacity through the ability to attract support from institutional and international investors.The combining of the asset portfolios of the two companies will necessarily result in a diversified, multi-commodity resources company with exposure to the key commodities
driving the current resources boom.
REASON 8: Funding of the offer is highly conditional
Fairstar response: GWR describes the underwriting agreement which Fairstar has in place to fund transaction costs and working capital requirements of the merged
Fairstar/GWR entity as "highly conditional".
As GWR is well aware, the underwriting is not subject to any conditions, and indeed the independent Takeovers Panel has found Fairstar's description of the underwriting arrangements (contained in section 1.5 of the Bidder's Statement) to be entirely adequate.
REASON 9: Inability to accept another offer
Fairstar response: The statement is non-sensical as no other offer exists to acquire GWR shares.
Having carefully considered the contents of the Target's Statement, Fairstar is still fully committed to the success of its takeover bid.
If you have any questions on how to accept Fairstar's offer, please contact the Fairstar Shareholder Information Line on 1800 895 933 (within Australia) or +61 2 8256 3373 (outside Australia), or contact your stockbroker or financial adviser.
Fairstar's Offer remains open until December 13.
