IndonesiaÆs Antam, which already has a 20% stake in a joint venture with Herald to develop HeraldÆs key asset, the Dairi project on the Indonesian island of Sumatra, is bidding in consortium with Shenzhen Zhongjin Lingnan Nonfemet. The development potential of the zinc/lead project can be gauged from how hard both bidders are fighting to secure control of a company which had a net loss of A$1.23 million on a turnover of A$6.31 million for the 12 months ending June 30, 2007.
Antam and Zhongjin have created a special purpose vehicle called Tango to effect the takeover, which is owned 40% by Antam and 60% by Zhongjin. Tango is being advised by Macquarie Capital Advisers and Blake Dawson.
Tango yesterday improved its offer for Herald on a per share basis to A$2.60, which will increase to A$2.65 a share if Tango corners more than 90% of Herald. At the lower price, the bid values 100% of Herald's equity at A$514 million and at the higher price of A$2.65 this translates to A$524 million. The step function is a tactic which has been commonly used in recent deals as it generally makes hedge funds interested in buying the shares and increases the chances of the offer succeeding.
As on January 31 this year, Antam had around $553 million of cash reserves which it will use to fund its part of the offer. Zhongjin will use its cash reserves of around $217 million, supplemented by debt it will raise from one or more of 13 Chinese banks with whom it has funding arrangements.
The board of Herald Resources has withdrawn its May 26 recommendation for the offer by competing bidder, IndonesiaÆs Bumi Resources, and is now recommending the Tango offer. HeraldÆs directors have also agreed to sell their own Herald shares, representing an 8.27% stake in the Australian company, to Tango. The bidders had earlier built up a stake of 11.18% in Herald and thus will now own 19.45% including the directorsÆ shares. Herald is being advised by Euroz Securities and Blakiston & Crabb.
The Tango offer is conditional upon achieving a simple majority of 50.1%. Tango has, however, reserved the right to up its bid further should Bumi or anyone else make a superior offer. TangoÆs offer will expire on June 19.
Tango and Bumi have been playing one-upmanship in their bids for Herald. On May 26 Bumi offered A$2.55 per share for the company, 2% higher than the outstanding offer from Tango at the time. TangoÆs current offer at A$2.60 per share is 2% higher than BumiÆs most recent offer, and the step-up price of A$2.65 is 3.9% higher. BumiÆs offer will expire on June 4.
On Monday this week, BumiÆs acquisition vehicle, Calipso Investments, informed the Australian Securities Exchange (ASX) that it now controls 19.8% of the voting rights of Herald. Bumi is advised and part-financed by Credit Suisse.
ôTangoÆs revised offer gives the vast majority of Herald shareholders, including Calipso, the opportunity to realise a significant return on their investments,ö says MacquarieÆs Martin Alciaturi in the ASX filing.
Recently, Chinese firm Sinosteel refused to be drawn into a bidding war for Australian mining and exploration company Midwest and instead on May 28 declared that its A$1.36 billion offer is full and final. Sinosteel now does not have the right to up its offer even if a competing bidder tables an improved bid.
But the cases are not strictly comparable because the competing bid for Midwest is an all-scrip offer from Murchison Metals. Indeed, Sinosteel highlighted the fact that it is offering cash, which is more certain in currently shaky markets. In the case of Herald Resources, both competing bidders are offering cash.
In a filing on the ASX on May 27 the directors of Herald had highlighted that CalipsoÆs offer of A$2.55 per share was lower than the valuation range of between A$2.62 and A$3.29 per share determined by CalipsoÆs appointed independent valuer. TangoÆs independent valuer has determined a valuation for Herald which suggests a per share price between A$3.09 and A$3.67 per share. Herald had also announced a further increase in the deposits at the Dairi project.
When Bumi made its original offer of A$2.25 per share on December 13, the price represented a 32% premium to the one-week volume-weighted average price up to December 11. Herald's shareholders have reaped the benefits of the bidding war. Herald shares closed at A$2.78 yesterday, down only 0.4% while the broader market fell 1.6% to a five week low as credit crisis worries continued to make investors nervous.