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Cool response to China coal bid for Gloucester mines

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GLOUCESTER Coal’s minority shareholders may not get good value from Yanzhou Coal’s $2.1 billion cash-and-scrip bid to create Australia’s biggest pure-play coal company, according to Credit Suisse.

Credit Suisse analyst Paul McTaggart said the $5.1bn equity value the Chinese state-controlled company had put on assets it planned to merge with Gloucester gave a hefty $15-a-tonne value to Yancoal’s reserves and represented a deal uplift of 19 per cent to Gloucester shareholders.

“It is not clear to us that this is a great proposal for Gloucester minorities, nor that the minorities will support the deal,” he said.

Mr McTaggart said the equity value of $5.1bn, which took into account $2.7bn of debt being wrapped into the planned listed company, looked high.

Based on the $3.5bn Yanzhou paid in 2009 for Felix Resources, whose assets make up most of those going into the new company, a net equity value of $3.6bn might be a better valuation and would mean the deal was neutral to Gloucester, he said.

Yanzhou revealed its well-flagged deal with Gloucester on Friday. Gloucester shareholders are being offered $700 million, or $3.20 a share, in cash and 23 per cent of a new merged company that would be listed on the stock exchange to fulfil undertakings given by Yanzhou in the Felix takeover.

The new company would include Gloucester’s mines, which are in NSW and Queensland, the mines Yanzhou acquired with Felix, also in Queensland and NSW, and Yanzhou’s Austar mine in NSW.

Not included in the deal are Yanzhou’s Cameby Downs mine in Queensland and the Premier mine in Western Australia.

The value of the Gloucester stake that will be listed is being represented at $6.96 a share, or $1.4bn, giving the new company an expected equity value of about $6.5bn, based on Yanzhou’s valuation. It is backed with a guarantee from Yanzhou in the form of contingent value rights (CVR) that would pay the difference, up to $3, between $6.96 and the share price of the new company 18 months after listing.

“You could think of the CVRs as implying an offer price of $10.16 a share for Gloucester shareholders,” Mr McTaggart said.

“We think this is too simplistic and, in any event, shareholders will not get this until 18 months.”

Gloucester shares closed at $8.55, up 22 per cent, on Friday after coming out of a trading halt.

Gloucester’s 64.5 per cent shareholder, Noble Group, and Gloucester’s directors plan to go along with the deal if due diligence and a Deloitte independent expert’s valuation say the deal is a good one and a better offer does not emerge. For the deal to go ahead, 75 per cent of Gloucester’s voting shares need to approve it.

The head of Gloucester’s second-biggest shareholder, Ausbil Dexia, with a 5.6 per cent stake, has said he needed more information on values and shareholder protection.

But the concept of forming a big coalminer to take up a gap in the current sharemarket was appealing, Ausbil chief Paul Xiradis said.

“There’s not many alternatives, that is part of the attraction of this new vehicle,” Mr Xiradis said. “It will be a large listed company, with strong ambitions to grow.

“Provided their production expansion makes economic sense and they’re striving to get to lowest quartile as far as costs are concerned, it makes a pretty viable investment vehicle.”