Pallinghurst brings new offer for Consmin (July 30, 2007)

What started as a large private-equity investment has at last turned into a takeover battle for Consolidated Minerals (CSMBF-O, CNM-L, CSM-A), with the board of the Australian chrome and manganese producer recommending a revised offer by a group of investors led by investment fund Pallinghurst Investor to buy up shares at A$3.30, an offer that values Consmin at A$873 million, fully diluted.

The group, led by former BHP Billiton (bhp-n, blt-l, bhp-a) chief executive Brian Gilbertson, also includes Swiss coal holding company AMCI, and had previously sought to take up a 60% interest in Consmin via a deal where five Consmin shares would be traded for A$1.38 and two shares in a reorganized Consmin (T.N.M., March 12-18/07). The cash portion of that offer was bumped to A$1.68 earlier in July as another bidder for Consmin was surfacing.

That bidder was iron ore developer Territory Resources (TTY-A), led by former Consmin managing director Michael Kiernan. Territory approached Consmin with an alternative deal of A$1.50 plus 1.5 Territory shares, in a bid bankrolled by two metal trading groups, Noble Group of Hong Kong and DCM Decometal International Trading of Austria. Both are Consmin customers, buying chromite and manganese, and together they own about a 12% interest in Consmin.

Territory’s conditions included an open data room, which Consmin declined to provide without reciprocal disclosure from Territory. Consmin’s board rebuffed the “incomplete indicative proposal,” and Territory subsequently came back with a bid of A$2.00 plus 1.5 Territory shares, which (based on Territory’s share price of A$1.09 at presstime) valued Consmin at A$3.64 per share or — based on a full exercise of convertible securities — A$963 million. It placed a condition of 75% acceptance on its bid, not including Territory’s, Noble Group’s, and DCM’s present holdings in Consmin.

At the back of the Territory offer is a plan to bring several companies under one corporate roof, including another of Kiernan’s companies, vanadium developer Precious Metals Australia (pcmaf-o, pma-a). Similarly, the Pallinghurst group has suggested that some assets held privately by Pallinghurst and AMCI could be folded into the reorganized Consmin to make it a large diversified mining company.

The offer came just in time to force cancellation of a Consmin shareholder meeting that would have considered the A$1.68-and-two-shares bid from Pallinghurst and AMCI. Instead, the friendly bidders dropped earlier conditions on their bid (and their break fee) and delivered an off-market purchase offer, which they will take up if a minimum of 50.1% of Consmin shares are tendered.

Consmin’s board recommended this against a superficially richer Territory bid on the grounds that the cash payout was more certain, and the reorganized company would not be saddled with significant debt to the two metal trading companies and to investment house Lehman Brothers, which is providing a loan for Territory’s bid.

But the A$3.30-per-share offer is A18 below the market price of Consmin shares at presstime, and Territory’s Kiernan labelled the deal made by Consmin’s current board a “disgrace.” Kiernan himself was pushed out at Consmin in 2006 after several large shareholders complained about his compensation package, negotiated by an earlier board of directors; he subsequently took over at Territory, which has just brought the new Frances Creek iron mine, in the Northern Territory, into production.