UPDATE: Xstrata Abandons Full Takeover Of Sphere, Reduces Ambitions To Control
October 27 2010 - 12:47AM
Dow Jones News
Xstrata Plc (XTA.LN) will abandon its all-or-nothing drive for a
full takeover of Australian iron ore developer Sphere Minerals Ltd.
(SPH.AU) and settle for control of the company, amidst lackluster
takeup of the company's A$2.50-a-share proposal.
The Anglo-Swiss diversified miner's first major foray into iron
ore has turned into a tussle over Sphere's shareholder register,
with Chinese investors led by Singapore-based commodities trader
Sin-Tang Development vying to block the bid.
The problems illustrate the fierce competition between
non-Chinese resource companies and Chinese commodities consumers as
they vie for undeveloped mineral resources in emerging
economies.
Xstrata said Wednesday it would declare its offer unconditional
if its interest in Sphere, which is focused on magnetite prospects
in the West African nation of Mauritania, exceeds 50% by Nov. 12
when the offer period ends.
That would mean the company would settle for control of the
company and its board, a climbdown from the original offer
announced Aug. 24 which aimed at a full takeover.
"We believe our cash offer ... is very attractive to Sphere
shareholders," Xstrata Coal Chief Executive Peter Freyberg
said.
"We wish to announce our willingness to declare our offer
unconditional under certain circumstances, in order to expedite the
process," he said.
Sin-Tang has circulated alternative proposals for financing
Sphere's development prospects amongst the company's major
shareholders, according to an adviser to Sin-Tang, arguing that
Xstrata's offer does not represent the best option.
The trader, headed by iron ore trader Yuzheng Xie, has Chinese
steelmakers including Tangshan Ganglu Iron & Steel Co. Ltd. and
Tianjin Metallurgy Group Co. Ltd. as major investors.
Sin-Tang's plan would aim to raise funding for Sphere's Askaf
magnetite project from Chinese investors to the tune of around
US$540 million, the adviser said.
Sphere aims to produce six million metric tons a year of
magnetite pellets from the project from the first three months of
2012.
Xstrata's original offer represented a 61% premium to the
company's closing price on the eve of the bid and came with the
recommendation of Sphere's board.
But the Sphere holding by Xstrata's Sidero vehicle had risen to
just 8.38% on Monday from the 5.46% held by Sphere's board when the
offer was first announced in August.
In a notice to the Australian Securities Exchange Wednesday,
Sidero said its holding had since fallen to 8.21%.
Sin-Tang said that drop indicated Sphere shareholders were
turning their backs on Xstrata's bid. "It appears that some of the
people that had accepted the offer have changed their minds, which
they are entitled to do as of yesterday due to variations in the
original bid," said a spokesman.
Sin-Tang has overtaken Xstrata in Sphere's shareholder register,
with a 10.77% stake sufficient to block a full takeover, which
requires 90% acceptance from Sphere shareholders if it is to go
ahead.
The adviser to Sin-Tang said that Sphere's major shareholders
had indicated they would need a bid raised to as high as A$3.50 a
share to consider selling out to Xstrata, and added that the miner
would have trouble running the business as a controlling
shareholder alone.
"They're now defining success as anything above a 50.1% stake.
That would give them control of the board but they'd still have to
deal with Sin-Tang because Sin-Tang isn't going away."
-By David Fickling, Dow Jones Newswires; +61 2 8272 4689;
david.fickling@dowjones.com
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