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PMM, PORTMAN LIMITED
suti
post Posted: Apr 8 2005, 11:26 PM
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Broker goes for broke on Portman bid

Bryan Frith
MATP
1,015 words
8 April 2005
The Australian
1 - All-round Country
18
English
Copyright 2005 News Ltd. All Rights Reserved

An exercise in brinksmanship sees ABN AMRO in a high-risk strategy

ABN AMRO Equities has taken the unusual step of advising remaining shareholders of iron ore miner Portman Mining not to accept Cleveland-Cliffs' $3.85-a-share cash bid, but to remain as minority shareholders.

Moreover, it appears that AMP Life and the fund management arm, AMP Capital Investors, agree with that strategy, having surfaced as a substantial shareholder, with 5.13 per cent of capital. The stake was announced the day Cleveland-Cliffs was expected to close its bid; instead, the US group extended for a further two weeks.

It must be expected that AMP didn't buy the stake only to turn around and take the Cleveland-Cliffs offer. If so, it's presumably hoping the US group will be unable to satisfy compulsory acquisition criteria and it will remain as a minority holder after the bid closes. That's an unusually aggressive approach.

The Cleveland-Cliffs bid has been an exercise in brinksmanship. It originally made a $3.40 recommended offer, but lifted it to $3.85 after the Japanese steel mills granted the major iron ore producers a massive 71.5percent hike in iron ore prices. Hedge funds piled into the stock, hoping to force Cleveland-Cliffs higher. It responded by declaring its bid unconditional, when it held only 5 per cent. It then declared the bid price final and topped that off by declaring the closing date final.

The latter move prompted a rush of acceptances which took Cleveland-Cliffs over 50 per cent in the final week, automatically triggering a two-week extension. That extension expired on Tuesday, but, at that stage, Cleveland-Cliffs held only 73 per cent of Portman, well short of the 90 per cent needed for compulsory acquisition.

So, it extended for a further two weeks. That must have unsettled some of those still hanging on, because it demonstrated the possibility that Cleveland-Cliffs would settle in for a war of attrition and keep extending the bid in an attempt to get across the compulsory acquisition line, which would enable it to access Portman's cash flow.

Moreover, Cleveland-Cliffs warned that, if it was unable to effect compulsory acquisition, the market liquidity of Portman would be "substantially diminished", the share price may fall substantially below $3.85 and it was likely to review the dividend policy, which could mean no dividends would be paid. Holders of a further 6 per cent promptly accepted, taking the US group's stake to 79.6 per cent.

Despite the target board's recommendation, ABN AMRO doesn't consider the bid fair value, and recommends that remaining shareholders reject the bid and retain a stake in a "high cash-generating company".

It's high risk, but ABN AMRO apparently doesn't see it that way. The broker considers the key risk is Cleveland-Cliffs satisfying the compulsory acquisition criteria, and holders being taken out at the bid price of $3.85, but payment could take at least one month, compared with five days, if they accept the offer.

ABN AMRO says if dividends aren't paid, Portman would invest the proceeds in other assets, which should add value. The main risk would be that Cleveland-Cliffs may make poor investments.

The broker also considers that a large proportion of the remaining holders are likely to be comfortable with a minority stake, and Portman's share price would be unlikely to fall significantly, but if it did, it would provide a buying opportunity.

But there's a much bigger risk ABN AMRO apparently hasn't considered -- the likelihood that Cleveland-Cliffs will subsequently acquire any remaining minorities under the general compulsory acquisition power. That additional compulsory power was added in the March 2000 CLERP corporate law reforms. It allows a party to compulsorily acquire remaining minority holdings, once it has full beneficial ownership of 90 per cent of the voting power, including where securities are convertible into shares. The intent behind the provision was to discourage greenmailing.

There have been a number of such acquisitions since the power was introduced and it has generally not been a rewarding experience for minority holders. That's because they have been taken out at prices well below the sharemarket price, based on an expert's opinion that the mop-up price was fair.

An expert's report is required, and section 667C1 provides some guidelines for the expert. It must assess the value of the company as a whole and allocate that value among the classes of securities on issue, but, in doing so, should not allow a premium, or apply a discount for particular securities in the class.

There have been a number of court cases over such mop-ups, which have generally ruled that, where a bidder receives special value, the minorities shouldn't receive any of that value.

If Cleveland-Cliffs fails to satisfy the compulsory acquisition criteria, it can use the "creeping takeover" provisions to pick up a further 3 per cent each six months. If it received no further acceptances, it would take 2 1/2 years to reach 90 per cent.

But, at 81 per cent, that would come down to two years; 84 per cent would be 18 months, and 87 per cent, only 12 months.

If some Portman holders opt to remain as minorities, they risk obtaining no dividends, and being taken out one to two years down the track at less than $3.85 a share. For a large holder, such as AMP, the market is likely to be too thin to allow it to dispose of its stake.

That risk arguably outweighs any potential reward. ABN AMRO itself only values Portman at $3.91 on a DCF basis, and its price target is only $4.10 a share. As it is, Cleveland-Cliffs will pay $4.04 per Portman share, accounting for Western Australia's punitive stamp duty.


 
wolverine
post Posted: Apr 8 2005, 08:58 PM
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it's way cool jjp.

cleveland have buckleys of getting the lot. furthermore, they can huff and puff all they want but they will need to pay out the divs to fund their bid so minorities should still get a solid yield and the kicker is cleveland will have to pay up to get em the hell off the register......or walk away.





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TOO MANY CHIEFS

NOT ENOUGH INDIANS
 
JJP
post Posted: Apr 8 2005, 08:44 PM
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Takeover suitor already has 80% stake in Portman and say that are not allowed to increase its $3.85 t/o offer price. Why then would anybody be purchasing stock at up to $3.95, as was the case today. ?

Clever hedge fund......probable the only significant holder left, with a blocking stake, looks set to torment Cleveland Cliffs for sometime longer before CC gets complete control.

The takeover has just been extented for a couple more weeks but todays action suggests 90% control will not be achieved. CC may decide to let the bid lapse......but would have the option to increase the t/o bid in 6 months (thats the bit that not many investors are aware off......the $3.85 bid is NOT final.)

A good example of this situation at play was the Luxottica takeover of OPSM ....code OPS.

The so called final bid was $3.95 I think, before a much later $4.35 bid mopped up the balance for Luxottica to get 90% ownership, prior to compulsory acquisition.

All this would be my take on the situation.....we will see how it all finally works out.



 
influxweb
post Posted: Apr 5 2005, 04:16 AM
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Comments please.

See attachment.

Regards
Andrew
Attached image(s)
Attached Image

 


 
homermcc
post Posted: Mar 24 2005, 06:12 AM
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Now PMM are out of the way who's the next likely candidate for T/O icon14.gif

 
burratipi
post Posted: Mar 22 2005, 11:50 PM
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In reply to: wolverine on Tuesday 22/03/05 11:19pm

Thanks wolve,
I agree 3.85 is OK. If it looks like a yield play I may hold, since when the nfd t/o resolves, I will lose a great yield stock (and company) there.
Yes, there are some interesting plays out there - I continue to watch igo, the chart seems to indicate it could run once it gets through about $1.40, Bell-Potter have a buy on igo.
Patriotism or realism - I'll take the latter wolve - although it would have been pleasing to see pmm and nfd remain Australian.
Regards



 


wolverine
post Posted: Mar 22 2005, 10:19 PM
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hi burra

just read a quick piece by Aegis. they point out that without full control PMM will have to pay some fat div's to repay the debt incurred by CC, so possibly if they don't get to compulsory acquisition it will be a buy for the chunky yield.

i am out so i am now reassessing the value of taking a few again.

$3.85 is nothing to sneeze at considering there are numerous other hard commodity plays out there and the possibility that soft commodities run next. not very patriotic but realistic.

good luck with your fun decision. either way you are a winner.



--------------------
TOO MANY CHIEFS

NOT ENOUGH INDIANS
 
burratipi
post Posted: Mar 22 2005, 09:21 PM
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In reply to: wolverine on Tuesday 22/03/05 04:11pm

Wolve,
I'm about to fold the tent & take the 3:85.
What do you make of the u bidders at 3:84, 3:83 and 3:77??
A possible blocking stake or buying for a hedge fund that would on-sell to CC - for a fee?
Any thoughts??
Regards

 
wolverine
post Posted: Mar 22 2005, 03:11 PM
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bid declared unconditional.



--------------------
TOO MANY CHIEFS

NOT ENOUGH INDIANS
 
burratipi
post Posted: Mar 17 2005, 01:14 PM
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In reply to: wolverine on Friday 11/03/05 01:02pm

Hi wolve and suti,
Probably a good move wolve. Got a call last night from Wilsons, said I'd go along for the ride - the fate of pmm lies with the hedge funds. I doubt they would want to be locked in to a long(er) term position in a relatively small stock like pmm., they will sell at the 11th hour.
I had been thinking George Jones might try to orchestrate a higher bid somehow, but that looks increasingly unlikely.
Suti, your point about csm is interesting, there was a rumoured approach from csm, 1:1 would look OK now??
regards

 
 


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