SouthGobi has also been informed by its 57.6% major shareholder, Ivanhoe Mines Ltd. (“Ivanhoe”), that Ivanhoe has signed a lock-up agreement with CHALCO, committing to tender all of its shares held or thereafter acquired by it during the Offer Period of CHALCO into the Proportional Offer.
The
Proportional Offer will be made by way of a takeover bid circular under British
Columbia law and will be made to all SouthGobi shareholders. If shareholders
tender more than 60% of the outstanding common shares of SouthGobi to the
take-over bid, a proportional amount of shares will be taken up from each
shareholder. SouthGobi has not received any formal documentation relating to
the Proportional Offer. CHALCO has advised SouthGobi that it expects to
mail the takeover bid circular in connection with the Proportional Offer on or
about July 5, 2012. (Quite far away)
The
offer price is CAD $ 8.48 or roughly translated to be HKD$ 65.97. Given that
Ivanhoe Mines has signed a lock-up agreement I would think the deal should not
have any acceptance risk.
The
pre-announcement share price for 1878 HK is HKD $51.25 and the current price is
HKD $ 59.90. At
current levels there seems to be zero premium (or slightly negative premium) in
the deal if you take into account that you can only tender in 60% and assuming
that the 40% you can sell at pre-announcement price.
The
deal gets attractive around HKD$56, as I would deem you need a bit more premium
to assume the risk of the remaining 40% that you can't tender in.
Usually
in these deals where the target is listed in 2 markets, there are always
opportunities to arbitrage the target stocks just like doing ADR
arbitrages.
The
good thing about the deal is that besides the proportional takeover, the
company has entered into a Cooperation Agreement as well with Chalco. I have
attached the excerpt from the release on HKSE
"Key
benefits under the Cooperation Agreement between SouthGobi and CHALCO include:
•
Coal off-take by CHALCO
– SouthGobi will have the right to offer up to 100%
of its salable coal to CHALCO and CHALCO will have the obligation to purchase
the coal at market prices for a period of 24 months.
•
Infrastructure support
– CHALCO will assist SouthGobi to procure
electricity for its Mongolian business operations either through a direct
connection to grid power, or through development of a conveniently located
power plant. CHALCO will also provide support to SouthGobi’s coal-haul highway
project. "
So
at least in my opinion, there will be a support level for the share price of
SouthGobi. (when you think of the 40% that you can't tender in)
