Bloomberg News

Glencore Proposes Cash Bid Valuing Optimum Coal at $1.2 Billion

September 01, 2011

Sept. 1 (Bloomberg) -- Glencore International Plc, the largest publicly traded commodities supplier, proposed a cash takeover of Optimum Coal Holdings Ltd. that values the South African target at $1.2 billion, to add mines as prices gain.

A Glencore-led group plans to offer 34 rand ($4.85) a share, the Baar, Switzerland-based company said today in a statement. Optimum said it received a further approach, without identifying the potential rival bidder, and doesn’t view Glencore’s move as a firm intention to make an offer.

Chief Executive Officer Ivan Glasenberg, who led Glencore’s $10 billion initial public offering in May, said last week he is “aggressively” seeking mergers and acquisitions as valuations slide. The trader bought a 14.1 percent stake in Johannesburg- based Optimum on Aug. 29 and said today it has agreements that may increase this to 43.5 percent.

“We see the transaction as having strategic benefits for Glencore, in terms of increasing its industrial reserves in a core commodity,” RBC Capital Markets analysts said in an e- mailed report. “Bids from other parties are possible and could push up the price, but with over 40 percent of Optimum’s shares owned by Glencore or promised to the consortium already, we see chances of a third party bid as unlikely.”

‘Sustained Demand’

Optimum’s assets, which include mines and port capacity, are an “attractive addition” to Glencore’s South African operations, Tor Peterson, director of its coal unit, said in the statement. “We expect strong Chinese and Indian imports and concerns surrounding nuclear generation capacity to result in sustained underlying demand for coal.”

Optimum, South Africa’s fourth-largest coal exporter, advanced 1.4 percent to 33.55 rand by the 5 p.m. close of Johannesburg trading. Glencore dropped 0.8 percent to 418.3 pence in London. The proposed offer price is a 36 percent premium to Optimum’s 30-day volume-weighted average as of Aug. 16, a day before Optimum said it’s in talks that may affect the price of its shares.

“One would forecast demand for electricity to continue to rise in the Asian region and Glencore is a key player in supplying power stations around Asia,” John Meyer, an analyst at Fairfax IS in London, said today by phone. “Glencore has money to spend and I think will look to expand its trading business on further acquisitions.”

Glencore is bidding through an investor group and its local Black Economic Empowerment partner Cyril Ramaphosa, the chairman of Shanduka Group. Glencore holds a 70 percent interest in Shanduka Coal, whose mines have a production capacity of 9 million metric tons a year with Europe the primary market for its sales, according to Glencore’s website.

“Most investors are very wary of investment in South Africa, but Glencore goes where others fear to tread and usually seems to do very well out of it,” Fairfax’s Meyer said.

No Firm Offer

Optimum said the proposal doesn’t “constitute a firm intention” to make a bid. Chief Executive Officer Mike Teke declined to comment further when contacted by phone today.

“There is therefore no proposed offer in respect of which the board is required to provide a recommendation,” Optimum said in the statement. “If the board receives a firm offer, it will consider its position and make a recommendation to shareholders, taking into account independent advice received, its own views of the fairness and reasonableness of the proposed offer, and any alternative offers.”

Optimum’s board has also received a further unsolicited, non-binding expression of interest from a third party to acquire a controlling interest in the company.

“The expression of interest provides for certain preconditions to be met before the alternative party will be prepared to express a firm intention to make an offer, including a due diligence investigation,” it said.

Coal Prices

Optimum operates South Africa’s third-largest opencast mine, bought from BHP Billiton Ltd. in June 2008, and has an allocation to ship 8.44 million tons of coal a year through the Richards Bay export terminal, the country’s main coal export harbor.

Its Koornfontein and Optimum collieries are in Mpumalanga province, where Glencore’s Shanduka Coal unit operates five mines.

Prices for thermal coal may average about $130 a ton in 2011, up from about $98 last year, Morgan Stanley said in a July 26 report.

Shanduka Group, formed in 2000, has investments in mining, energy, financial services, property and beverages. Founder and Chairman Ramaphosa is a former head of the National Union of Mineworkers and secretary general of the African National Congress, and led the ANC team that negotiated the end of apartheid with the white-minority government before elections in 1994. The Johannesburg-based company’s name means “change” in Venda, one of the country’s 11 official languages.

Glencore is being advised by Bank of America Corp. while Standard Chartered is working with Optimum, according to the South African company’s statement.

--With assistance from Carli Lourens in Johannesburg. Editors: John Viljoen, Alex Devine

To contact the reporter on this story: Jesse Riseborough in London at jriseborough@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net


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