Consmin board good with Palmary offer (October 18, 2007)

The board of Australian chromium and manganese producer Consolidated Minerals (CSMBF-O, CNM-L, CSM-A) is sticking with its recommendation that shareholders accept a cash takeover offer from Ukrainian conglomerate Privat Group, through Privat’s subsidiary Palmary Enterprises.

Palmary made its bid of A$4.50 per share unconditional on Oct. 16, after its rival bidder, the Pallinghurst Investor Group, matched the A$4.50 offer on Oct. 12. Pallinghurst’s kicker was a “top-up” offer, under which Pallinghurst would pay the difference between their offer and a future Palmary offer to shareholders that tendered to the Pallinghurst offer. That payment was conditional on Palmary making a revised bid before Oct. 24.

Pallinghurst also put final conditions on its offer, which was scheduled to close on Oct. 24 and which Pallinghurst cannot voluntarily extend. It has one escape clause, which is to match any offer made before the deadline.

Palmary moved against Pallinghurst’s offer at the Australian Takeovers Panel, charging that Palmary’s plan for a top-up payment is an “unacceptable circumstance” affecting the takeover bids. The Takeovers Panel responded by ordering Pallinghurst to extend its offer to Nov. 2.

Palmary’s own conditions were routine, such as regulatory approval, and most had already been met before Palmary waived the bid conditions. Palmary also filed a notice to the Australian Securities Exchange that it had a 14.3% interest in Consmin.

The bids value Consmin at A$1.2 billion ($1 billion or US$1.1 billion), based on a fully-diluted capitalization of 264.5 million shares; currently there are 229.6 million shares in Consmin’s float.

Pallinghurst, a venture of two private companies — Pallinghurst Resources, led by former BHP Billiton (BHP-N, BLT-L, BHP-A) executive Brian Gilbertson, and AMCI, a Swiss mining house with significant interests in coal — was the original bidder for a stake in Consolidated Minerals, offering A$1.38 per share for 60% of the company in February. Then-current shareholders would have retained a 40% shareholding.

Next into the ring was Territory Resources (TTY-A), which bid A$1.50 cash plus 1.5 Territory shares for an outright takeover of Consmin in late June. It shortly raised its bid to A$2 in cash plus 1.5 shares. Territory, run by former Consmin managing director Michael Kiernan, found no traction with its bid, getting 0.02% of shares before folding its hand on Oct. 15.

Palmary started with a bid of A$3.95 per share in September, after amassing a 13.5% shareholding in Consmin on the open market (and thereby blocking any compulsory acquisition by a party holding 90%). The Territory bid had already prompted Pallinghurst to increase its offer, but once Palmary was in the auction became a bidding war between the two private companies, which culminated in the Consmin board — which had supported Pallinghurst from the start — switching its approval to the Palmary bid.

The Consmin board maintained its recommendation for the Palmary bid on two grounds, noting that Pallinghurst is bound not to increase its offer unless a higher bid appears and that Palmary, whose offer is open for acceptance whether or not it gets a 90% stake in Consmin, may move some of its upstream mining assets into Consmin and increase the value of the company. The board preferred the payment timing of the Pallinghurst offer, but that was not enough to offset the other factors.

The board did, however, suggest any shareholders looking for a quick cash-out could sell on the market. Consmin shares closed at A$5 on the Australian Securities Exchange.