A Chinese consortium trying to win support for a deal with iron ore developer Sphere Minerals claims that a majority of Sphere shareholders will reject an alternative takeover proposal from Xstrata.
A Chinese consortium trying to win support for a deal with iron ore developer Sphere Minerals claims that a majority of Sphere shareholders will reject an alternative takeover proposal from Xstrata.
Xstrata has lodged a takeover offer pitched at $3.00 per share and has won the support of Sphere's directors.
The Chinese consortium led by Sin-Tang Development and including contractor MCC, has put forward an alternative proposal, involving a fully underwritten $111 million rights issue pitched at $3.25 per share.
The consortium wants Sphere to focus on development of its Askaf project in west Africa, followed by two other projects.
In a letter submitted by its law firm Clayton Utz to Sphere, Sin-Tang noted that acceptances of Xstrata's offer was 8.15 per cent
"The Chinese consortium is of the view that this suggests that Sphere's shareholders are preferring to participate in development of the project(s) and the growth of Sphere," the letter said.
"Discussions with Sphere's largest shareholders confirm this."
It added Sin-Tang (with a 12.74 per cent stake) will not accept the offer.
Based on this, and discussions with other large shareholders via its corporae adviser Argonaut, "it appears unlikely that the Xstrata offer will be successful".
This has done little to sway the Sphere directors, who reiterated today that it still supports the Xstrata takeover offer.
In a statement, Sphere said it considered the proposal put forward by Sin-Tang but that it is not superior to Xstrata's wholly-owned bidding vehicle, Sidero's increased offer of $3 a share.
The Board of Sphere stated: "The Conditional Askaf Financing Proposal does not represent a Superior Proposal for Sphere shareholders on the grounds that it is uncertain, highly conditional and inferior to the Xstrata offer."
"Importantly, this is a conditional project financing proposal, not an offer capable of immediate acceptance," the board said.
Earlier today, Sphere shares were placed in a trading halt.
Sphere has three large-scale iron ore projects in Mauritania in north-western Africa.
Xstrata is being advised by Deutsche Bank and Sphere has Goldman Sachs.
Xstrata has said it will let its bid lapse by November 12 if it does not get to the required 50 per cent of acceptances.
According to Xstrata's latest change of interest notice, lodged with the Australian stock exchange on Thursday, Sidero holds 8.15 per cent of Sphere's voting power.
Sphere shares last traded at $2.94.
Sphere statement below:
After close of market on 4 November 2010, Sphere received a letter from Clayton Utz, legal advisers to Sin-Tang Development Pte Limited ("Sin-Tang"), outlining a proposal under which Sin-Tang and others would seek to secure funding required for Sphere to develop the Askaf project, one of Sphere's three iron ore projects in Mauritania ("Conditional Askaf Financing Proposal").
The Sphere Board has considered the Conditional Askaf Financing Proposal in consultation with its financial and legal advisers. The Sphere Board has resolved:
that the Conditional Askaf Financing Proposal is not a Superior Proposal and is not reasonably capable of becoming a Superior Proposal to the Xstrata offer and is not in the best interests of Sphere shareholders; and
to reaffirm its unanimous recommendation to accept Xstrata's cash offer of $3.00 per share.
The Board of Sphere stated "The Conditional Askaf Financing Proposal does not represent a Superior Proposal for Sphere shareholders on the grounds that it is uncertain, highly conditional and inferior to the Xstrata offer. Importantly, this is a conditional project financing proposal, not an offer capable of immediate acceptance."
Summary of terms of the Conditional Askaf Financing Proposal
Attached to this release is a copy of the Conditional Askaf Financing Proposal. The Sphere Board is of the view that disclosure of the proposal is required to ensure full and equal disclosure to shareholders and for Sphere to comply with its continuous disclosure obligations and obligations under the Corporations Act 2001 (Cth).
The following is a summary of some of the key provisions of the Conditional Askaf Financing Proposal:
the proposal states that Sin-Tang has the support of Metallurgical Corporation of China Ltd ("MCC"), and other Chinese or related parties including Aus-ore Investments Pty Ltd ("Aus-Ore") (together, the "Chinese Consortium");
the Chinese Consortium is seeking to secure funding required for Sphere to develop the Askaf project only. A decision as to the development of Sphere's Guelb el Aouj and Lebtheinia projects would be made following a decision to mine the Askaf project.
The proposal comprises:
very preliminary and conditional funding arrangements including a letter of comfort from MCC to assist Sphere secure Export Buyer's Credit from Chinese banks for 70% of the EPC contract price in the event that MCC is awarded the EPC contract, and a letter of intention of credit from the Bank of Communications Co for US$350 million in funding for the development of the Askaf Project; and
a renounceable pro-rata entitlement issue by Sphere of 34.3 million shares at A$3.25 per share to raise A$111 million. Such issuance would be underwritten by Sin-Tang.
The Sphere Board does not regard the Conditional Askaf Financing Proposal as a Superior Proposal
The Sphere Board notes the following in respect of the Conditional Askaf Financing Proposal:
the proposal has a significantly higher level of risk and uncertainty for Sphere shareholders than Xstrata's all cash offer of $3.00 per Share;
it is a highly conditional and high risk financing proposal which would potentially result, if it were to be effected, in dilution of Sphere shareholders with Sin-Tang potentially achieving a holding of around 30% of Sphere following the proposed equity raising without being required to make an offer to all shareholders;
the proposal is subject to a large number of conditions including Australian, Chinese and Mauritanian regulatory approvals and multiple levels of due diligence and approvals in respect of the proposed equity raising and as part of any debt financing by banks and financial institutions;
the preliminary and conditional funding arrangements referred to in the proposal are subject to significant uncertainty. The US$350 million Bank of Communications Co letter of intention of credit is subject to, among other things, completion of a feasibility study, equity funding being in place and bank credit committee approval. In addition the letter of intention of credit expressly states that the letter is not a legal document and is not binding on the bank;
the proposal provides no certainty as to the timing for completion of any transaction and, given the significant regulatory, funding and due diligence conditions yet to be met, is not capable of being accepted or executed by the end of the Offer Period for Xstrata's offer; and
the proposal does not address the development and funding requirements in respect of Sphere's larger scale Guelb el Aouj and Lebtheinia projects.
For these reasons the Sphere Board, in consultation with its advisers, has determined that the Conditional Askaf Financing Proposal is not a Superior Proposal and is not reasonably capable of becoming a Superior Proposal, and therefore cannot be recommended.
Shareholders are strongly encouraged to ACCEPT Xstrata's offer without delay
The Sphere Board urges shareholders to accept Xstrata's offer without delay noting that the Xstrata offer closes at 7pm Sydney time on 12 November 2010.
