In a complicated deal, Atlas Iron has appeared on the scene to throw a spanner in the plans Hong Kong-based company, Wah Nam, has proposed for a round of consolidation among iron ore wannabees in the Pilbara.
In a surprise statement to the ASX yesterday Atlas said it had reached an agreed deal with FerrAus to combine their South East Pilbara iron ore assets into FerrAus, which would then be followed by Atlas making an off market offer for FerrAus.
The deal was announced before trading started and saw FerrAus shares jump 26% to more than 80c still under the implied value of the Atlas offer. They closed at 79c, up 23.4%, or 15c.
But Atlas shares shed 4.1%, or 14c, to end at $2.39, as investors concluded it was the immediate loser from the complex deal.
Wah Nam International is offering six of its shares for each FerrAus share but, at Wah Nam’s current 9.7c a share, this values the offer at 58.2c a share.
Atlas’s offer at Friday’s price of $3.43, valued FerrAus shares at 85.75c a share.
Despite the fall in the Atlas share price yesterday, its offer is still nearly 30% better than the Wah Nam offer.
FerrAus has been defending itself from Wah Nam, which bought 55% control of another Pilbara tiddler in Brockman Resources and has been trying to use its 18% stake in FerrAus to merge the two companies.
The Atlas offer, if successful, would frustrate that Chinese-based deal.
FerrAus has backed the offer, which would see its shareholders receive one share in Atlas for every four FerrAus shares at an implied price of 85.8c a share — a 34% premium to FerrAus’ last traded price.
The deal would dilute Wah Nam’s shareholding in FerrAus to 11% from the existing 18%.
As a first step in the deal, Atlas is proposing to sell its South East Pilbara iron ore assets to FerrAus for a 38.3% shareholding.
That would be followed by Atlas’s scrip takeover offer, which values 100% of FerrAus’s equity at $214m.
FerrAus directors have recommended the asset acquisition and takeover offer to shareholders, saying the deal offers a superior alternative to the unsolicited takeover offer from Wah Nam International Holdings.
"We see tremendous strategic rationale in the combination of both companies’ South East Pilbara assets in one vehicle," FerrAus chief Cliff Lawrenson said in yesterday’s statement.
"Not only does it significantly enhance FerrAus’s resource base and provide valuable economies of scale, but it also creates a larger, well funded company with a strong supportive shareholder to provide for the development of those assets.
“We strongly consider both transactions to be attractive propositions for FerrAus shareholders that provide real value and represent a superior alternative to either the current takeover offer from Wah Nam or proceeding on a stand-alone basis.
"Ultimately, however, we believe there are significant additional benefits for all stakeholders flowing from a combination of 100 per cent of both FerrAus and Atlas through this recommended takeover to achieve consolidation of the wider Pilbara region."
Atlas managing director David Flanagan described the deal as an "amazing opportunity". It would combine 489 million tonnes of DSO resources in south-east Pilbara, and additional exploration targets, and reduce capital costs as well as provide greater accessibility to funding.
"The strategic merit of combining the south-east Pilbara assets is undeniable.
"It substantially grows the resource inventory of FerrAus and injects considerable opportunity for rapid growth in resources through continued exploration, while providing the leverage required to pursue infrastructure development in the region,” said Mr Flanagan.
"Atlas’ development and production expertise, strong cashflows from its operations and its robust balance sheet mean that Atlas is well positioned to advance the combined South East Pilbara iron ore assets and maximise the value of these assets for the benefit of Atlas and FerrAus shareholders."
Atlas has a market value of about $2.8 billion after buying Giralia Resources for $828 million last December.
The combined companies would have a market capitalisation of $3 billion if the FerrAus deals are successful.
FerrAus said shareholders will have the opportunity to vote on both the Subscription and Iron Ore Assets Acquisition (Steps 1 and 2) at a meeting on August 17.
Atlas’ offer for FerrAus carries a minimum acceptance condition of 50.1%.
