Consolidated Bid Gets Complicated

A third bidder has emerged for Australian alloy-metals producer Consolidated Minerals (CSMBF-O, CNM-L, CSM-A), jumping a bid increase by friendly bidding group Pallinghurst Investor.

The new bidder is Privat Group, with banking and metallurgical interests centred in Ukraine, through a Belize-domiciled subsidiary called Palmary Enterprises. Palmary is offering a straight-cash takeover bid of A$3.95 per share for Consmin, valuing the company at A$902 million ($780 million or US$738 million). Fully diluted, including the exercise of convertible notes, Consmin would have about 264.5 million shares outstanding, putting the value of the Palmary offer up to A$1 billion.

Palmary, controlled by Ukrainian businessman Henadiy Boholyubov, also owns a 90% interest in West African manganese miner Ghana Manganese. It assembled a 13.5% shareholding in Consmin on the open market in late July and early August, enough to prevent any successful bidder from taking the company private (which a bidder could have done by assembling a 90% shareholding).

Privat Group is built around Ukrainian commercial bank Privatbank, and also holds interests in Romania and the United States. Its principals are Boholyubov and metallurgist Ihor Kolomoyskiy, who became billionaires in the post-Soviet privatization of the Donetsk metallurgical complex (Boholyubov’s name is sometimes transliterated as Gennady Bogolyubov).

The group has a part-interest in the vast Nikopol ferro-alloys plant near Dnepropetrovsk. Its partner at Nikopol, Interpipe, led by Viktor Pinchuk, is a fierce rival of the Privat Group and control of Nikopol has been in dispute almost continually since the Ukrainian government sold off an initial 25% interest in 2003. A court decision in 2006 ruled the original sale (to Pinchuk) was illegal, but intervention by then-premier Yulia Tymoshenko stopped the renationalization.

Pinchuk is the son-in-law of former Ukrainian president Leonid Kuchma and an associate of Ukraine’s richest man, Rinat Akhmetov. Pinchuk and Akhmetov are identified with the pro-Russian political element in eastern Ukraine, led by Viktor Yanukovich. Privat is (less closely) identified with pro-European reformists surrounding Tymoshenko and president Viktor Yuschenko.

Privat also had controlled the Kriviy Rih iron mines in central Ukraine, but reports from Ukraine say Akhmetov’s company System Capital Management now owns 45% of Kryvorizhzhya Ore Enrichment through a Cyprus-based company, Cyprus Starmill.

The Pallinghurst bid, whose origins are in a friendly refinancing plan floated in March by Consmin management, was bumped by A30, to A$3.60, when the bidder placed a buy order on Aug. 28. That increase was formalized by an announcement to the Australian Stock Exchange two days later. At A$3.60 a share, Pallinghurst values the company at A$952 million.

Pallinghurst, led by Brian Gilbertson, the former chief executive at BHP Billiton (BHP-N, BLT-L, BHP-A) wants outright control of Consmin but is not tying its offer to a minimum acceptance. Under Pallinghurst’s plan, Consmin would continue as a public company.

The third bidder, Australian developer and newly minted iron producer Territory Resources (TTY-A), is offering A$2.00 plus 1.5 Territory shares, with a condition of getting 90% of outstanding shares. Territory’s closing price on Aug. 31 was A95, putting the imputed value of the offer at A$3.425 per share, or A$906 million.

Territory’s bid is supported by two metal trading companies, Noble Group and DCM Decometal International Trading, which together own 12% of Consmin. The plan for the bid is to create a mid-tier manganese-chromium-iron producer, with Territory selling off a minority shareholding in Australian nickel miner Jabiru Metals (JMLFF-O, JML-A).

Territory ran into regulatory trouble with its bid late in August, when it had to withdraw statements that managing director Michael Kiernan had made in interviews, analyst presentations, and at the Diggers and Dealers conference in Kalgoorlie in early August. Kiernan — who had been managing director of Consmin until a dispute with the board in 2006 — had said that Palmary, whose on-market buying had just become public, was supportive of the Territory bid, but had to retract that and state that Palmary had given no assurance it would accept the Territory offer for its shares. As is clear from the new Palmary bid, Privat Group has a very different agenda.

Territory also had to renounce another of Kiernan’s statements, to the effect that the managing director of Consmin, Rod Baxter, was entitled to receive 3 million shares of Consmin when the Pallinghurst bid was announced. Baxter’s actual entitlement is for 1 million shares over three years.

Meanwhile Consmin’s board has said it would consider the new Palmary offer and has agreed to a due-diligence session, subject to a confidentiality agreement.