Iluka Resources has terminated its long-running takeover discussions with Ireland-based Kenmare Resources, after being advised that Kenmare’s major shareholder would not support the planned acquisition.
Iluka Resources has terminated its long-running takeover discussions with Ireland-based Kenmare Resources, after being advised that Kenmare’s major shareholder would not support the planned acquisition.
Investment group M&G holds a 17 per cent shareholding in Kenmare, which meant that it alone “could likely prevent implementation of an acquisition”, Iluka said.
Today’s decision comes 18 months after Iluka first signalled its interest in acquiring Kenmare, which has its major mineral sands asset in Mozambique.
Iluka put a non-binding proposal to the board of Kenmare in April, involving an acquisition through an all-scrip exchange offer.
On November 23, Iluka submitted a further revised non-binding proposal to Kenmare, with an exchange ratio of 0.007 Iluka shares per Kenmare share.
By comparison, Iluka’s original offer ratio in June 2014 was 0.036 Iluka shares per Kenmare share and its offer in April 2015 was 0.016 Iluka shares per Kenmare share.
Iluka said the revised terms reflected a deteriorating global market backdrop and a recent significant drop in sulphate ilmenite prices in contestable markets.
Managing director David Robb said the proposed transaction with Kenmare was consistent with the company’s disciplined, diligent and patient approach.
“Iluka recognises that value creation for shareholders over time requires a business which exhibits profitability, sustainability and growth – for example, its asset flexing approach supports profitability goals while its strong balance sheet is designed to underpin sustainability and growth,” Mr Robb said in a statement.
“The company also recognises that growth typically requires an element of prudent risk taking.
“Iluka believes that in a heavily pro-cyclical resources industry, value can be generated by acting counter-cyclically, where appropriate.
“Finally, all major investment decisions by Iluka, counter-cyclical or otherwise, must satisfy two tests – strategic rationale and financial merit.
“Despite the latest development in Iluka’s pursuit of the Kenmare opportunity, the proposed all scrip acquisition passed these two tests.
“Crucially, however, Iluka was of the view that for the Moma operation to achieve its financial potential, the application of Iluka’s industry-specific technical competence, together with its market knowledge, access and reach, and balance sheet capacity, would have been necessary.
“Iluka considered that its technical capability and experience could have enhanced significantly the operational and thus financial performance of the Moma operation.
“In relation to sulphate ilmenite opportunities, Iluka will continue pre-feasibility studies and engagement with the Sri Lankan government in relation to the evaluation of the large, JORC compliant Puttalam sulphate ilmenite resource.”
