Murchison Metals Ltd says its $1 billion offer for Midwest Corporation Ltd represents good value and there is potential for a re-rating the combined group if it proceeds.
Murchison Metals Ltd says its $1 billion offer for Midwest Corporation Ltd represents good value and there is potential for a re-rating the combined group if it proceeds.
"We believe bringing together Murchison and Midwest at our offer price represents good value for Midwest shareholders," Murchison executive chairman Paul Kopejtka wrote in a letter to Midwest shareholders, released this morning.
Mr Kopejtka said Murchison's offer would deliver shareholders a significant premium on Midwest's price the day before the offer was announced.
"In addition to this headline premium, we believe there is real potential for a re-rating of the combined group should our offer succeed," he said.
In the letter, Murchison said it had a very attractive stand alone future through the arrangements the company now had in place with Mitsubishi.
"We will aggressively pursue that standalone course if we do not gain the support of a sufficient number of Midwest shareholders for this offer," the letter said.
Murchison rejected the argument, which is likely to be used by Midwest, that the two companies have a similar iron ore resource and therefore are worth the same amount.
"This argument ignores the reality of the market, which was attributing a significantly lower value to Midwest than it was to Murchison before we announced our offer," Murchison said.
It suggested the higher value attributed to Murchison would reflect:
- the status of its project, in particular timing to completion of a bankable feasiblity study;
- the strength and certainty of its joint venture arrangement;
- the propsect that Murchison would be a 50 per cent shareholder of the rail and port infrastructure while Midwest would be a customer;
- the composition of its board and management; and
- the identity and control of key shareholders and the extent of institutional support and market liquidity.
Murchison is offering one share for every 1.08 Midwest shares, which values Midwest shares at $4.93 based on Murchison's closng price before the offer was announced. This was a 41 per cent premium to Midwest's pre-offer proce and values the scrip deal at about $1 billion.
Murchison said completion of its deal with Japan's Mitsubishi provided the platform it needed to achieve a long-held ambition to develop the Jack Hills iron ore project, 380 kilometres north-east of Geraldton, in Western Australia, in a timeframe that would let it take advantage of strong iron ore prices and maximise returns for its shareholders.
"That platform will be there irrespective of the success or otherwise of our offer for Midwest and acquiring outright control of Midwest is not critical to Murchison's future," Murchison said.
"Our offer does, however, represent a unique opportunity to create value for shareholders of both companies that neither company can achieve on a standalone basis."
