Chinese buyers score M&A victories in Australia

The Noble Group cleared a significant milestone in its bid for Gloucester Coal yesterday, receiving the blessing of the Gloucester board of directors. Meanwhile, China Minmetals Non-ferrous Metals Company (Minmetals) secured key Chinese regulatory approval for its takeover of Oz Minerals, and Rio Tinto reaffirmed its commitment to the Chinalco investment.

The directors of Gloucester Coal told the Australian Securities Exchange (ASX) yesterday that they have advised shareholders that the new takeover proposal tabled by Noble Group on Friday is superior to the Whitehaven Coal merger proposal the board had earlier recommended. On Friday, Noble increased its offer for Gloucester Coal to A$7 ($5.35) per share, which represents a 44% premium to Noble's original offer of A$4.85 per share and is up 17% from the price of A$6 per share Noble tabled on May 5.

Noble's latest offer ascribes an equity value of A$572 million to Gloucester. The Hong Kong-headquartered commodities trading firm is Gloucester's largest customer and currently owns a 21.7% stake in its target. At the enhanced price, Noble's outlay will be A$448 million.

Earlier last week, on Wednesday, Noble filed a court case in the Australian High Court, demanding that all Gloucester shareholders, including itself, be allowed to vote on Gloucester's deal with Whitehaven. Gloucester has structured its takeover of Whitehaven as a reverse merger and therefore the approval of Gloucester's shareholders is not required. Noble is now withdrawing the court case.

The backing from Gloucester's board may be due to the improved price or because Gloucester feared it might lose in court. Whatever the case, Singapore-listed Noble is now likely to emerge triumphant in its bid for Gloucester Coal. Gloucester's share price gained 18% yesterday to A$6.94, moving towards the offer price as arbitrageurs got active in the stock now that the Noble offer seems on course to succeed and shareholders cheered the improved offer.

Gloucester Coal is an independent mining company with exploration and mining activities in the Gloucester Basin 100 kilometres north of Newcastle in New South Wales. Australia's Foreign Investment Review Board (FIRB) has already approved a takeover of the firm by Noble.

Noble is being advised by Citi, while Gloucester Coal is taking financial advice from UBS and legal advice from Freehills.

Last week, Noble and some of its shareholders raised $126 million from a placement of new and existing shares. Noble netted $86 million from the sale, which will no doubt come in handy for the Gloucester takeover. J.P. Morgan and Cazenove were the arrangers.

Also yesterday, China's National Development and Reform Commission approved a proposal from Minmetals to buy specified assets of Oz Minerals for $1.2 billion. Oz Minerals is Australia's third-largest diversified mining company, the world's second largest producer of zinc, a substantial producer of copper, lead, gold and silver, and a growing player in nickel production.

The Chinese state-owned enterprise (SOE) had originally offered $1.7 billion for the entire Oz Minerals but was forced to revise its proposal when one of the Oz Minerals' mines was deemed sensitive, as it is located near an Australian defence testing facility. Minmetals and Oz Minerals agreed to a different deal excluding the said mine, and last month received relevant approvals from Australian regulators.

Oz Minerals' share price gained 5.56% yesterday to 76 Australian cents.

Minmetals is being advised by UBS, while Oz Minerals is being advised by Caliburn Partnership and Goldman Sachs JBWere.

But the deal that is the cynosure of all eyes is the proposed $19.5 billion investment by Chinese SOE Aluminum Corporation of China (Chinalco) into Australian miner Rio Tinto, which will result in Chinalco owning 18% of Rio Tinto. Chinalco will also get direct minority stakes in a number of identified mines. On Friday, Rio Tinto replied to a query from the ASX, saying that it has noted media speculation that the deal may be aborted but the speculation is baseless as Rio Tinto "remains committed to delivering this strategic partnership". ASX had raised the query because Rio Tinto's share price fell 18% from A$71.60 on May 8 to A$58.95 on May 14.

London- and Australia-listed Rio Tinto produces copper, gold, iron ore, coal, aluminium and other minerals and metals.

Rio Tinto also informed the ASX that it had received approval of the Committee on Foreign Investment in the United States (CFIUS) for the sale of convertible bonds to Chinalco and for the indirect stake Chinalco will own in one of Rio Tinto's copper mines in Utah. The CFIUS approval follows approvals from Australia's competition watchdog.

Rio Tinto shares recovered some ground on Friday, gaining 7% on the positive news, then fell 1.2% yesterday to close at A$61.15.

Rio Tinto is advised by Credit Suisse and Morgan Stanley with Linklaters providing legal advice. Chinalco is adviced by Nomura, Blackstone, China International Capital Corporation and J.P. Morgan with Clifford Chance providing legal advice.

Earlier in May, in a presentation at the Macquarie Securities Conference in Sydney, Rio Tinto reiterated its commitment to the Chinalco investment saying the deal "offers a comprehensive resolution of financial issues with strategic benefits". Rio Tinto is struggling with a large debt burden and intends to use Chinalco's investment to pay down some liabilities.

But investors and other stakeholders have expressed concern that as a large equity and strategic investor, Chinalco will be able to exercise control over pricing of iron ore it buys from Rio Tinto. Rio Tinto has countered such fears, saying that prices for iron ore are not determined at the mine level and, further, that existing joint venture relationships have not had an impact on commercial decisions.

The deciding vote for the deal will be cast by the FIRB, which is currently evaluating the investment by Chinalco. The evaluation has entered a 90-day extension period, which expires mid-June. Rio Tinto is a much larger and more sensitive target than Gloucester Coal or Oz Minerals, and as a result, the deal has been highly politicised and the outcome is still uncertain.