Bloomberg News

Batista’s MMX Not Interested in Deal With Falcone-Backed Ferrous

February 01, 2012

Jan. 20 (Bloomberg) -- MMX Mineracao & Metalicos SA, the miner controlled by Brazil’s richest man Eike Batista, said it’s not interested in a deal with Ferrous Resources Ltd after the closely held iron-ore producer proposed a takeover.

Ferrous, backed by billionaire Philip Falcone’s Harbinger Capital Partners LLC hedge fund in New York, proposed on Dec. 19 a $2.3 billion takeover of MMX, according to a letter of the plan obtained by Bloomberg News. The companies held “several discussions” on a merger over the past 18 months, according to the letter, to which a response was requested by Jan. 10.

The Brazilian company made an initial proposal on a possible combination with Ferrous on Nov. 15, 2010, according to the letter. Ferrous’ advisers at Deutsche Bank AG and MMX representatives also had talks in August last year, it says.

Harbinger held more than 26 percent of Ferrous as of March. BHP Billiton Ltd., the world’s largest mining company, held talks to potentially take over Ferrous last year, two people with knowledge of the negotiations said in October. MMX, in which billionaire Batista controls a 42 percent stake, has a market value of 4.59 billion reais ($2.60 billion.)

MMX yesterday jumped as much as 5.8 percent, and fell 0.7 percent to 7.40 reais at its closing in Sao Paulo trading. Ferrous’s proposal values MMX at 6.63 reais a share based on the 30-day average price as of Dec. 16, according to the proposal.

Ferrous holders would own 53 percent of the combined company, with MMX owners having the rest, according to the proposal, signed by shareholders of Ferrous and addressed to Rio de Janeiro-based MMX’s board.

MMX Valuation

MMX, in a statement sent after the close of trading yesterday, said it’s not interested in a merger with Ferrous. An official at the company wouldn’t confirm if MMX has replied to Ferrous’ proposal.

Ferrous said MMX was worth $4.96 billion using a so-called sum-of-the-parts valuation, the letter shows. The merger would create a company, which would be listed on the Novo Mercado, with an equity value of $4.87 billion, it said. Bovespa’s Novo Mercado is a segment of Brazil’s stock exchange with stricter requirements for disclosure.

Philip Walters, an external spokesman for Ferrous in London, declined to comment when contacted by Bloomberg News. Lew Phelps, a spokesman for Harbinger, declined to comment.

While its base case was for an acquisition of MMX through a merger of shares, “Ferrous is open to considering other mutually beneficial structures, including a potential transaction structure in which MMX undertakes a merger of shares with New-Co and MMX is the surviving entity,” it says.

CEO Steps Down

Separately, Ferrous said today that Chief Executive Officer Mozart Litwinski is stepping down to pursue “personal business interests,” according to a statement. He was appointed CEO in April 2009.

Belo Horizonte-based Ferrous, which shelved plans for a $400 million London initial public offering in 2010, began iron- ore output in March of last year.

A combination of Ferrous and MMX “will create one of the leading players in the sea borne iron ore sector,” the letter shows. The new entity would have combined resources of 7.1 billion tons of iron ore and exploration potential for a further 3 billion tons. It could produce 59 million tons of the raw material a year by 2016, according to the letter.

Board Approval

The proposed purchase of MMX was approved by Ferrous’s board and shareholders on the board representing 72.2 percent of the stock, the letter shows. The equity value for Ferrous under the plan is $1.59 billion, based on a sum-of-the-parts valuation of $3.45 billion, it said. Ferrous will also contribute $1 billion in cash, giving it an equity valuation under the offer of $2.59 billion.

Ferrous has signed sales accords with Glencore International Plc and Noble Group Ltd. It was set up in 2007 and raised $1.26 billion from private placements between June 2007 and August 2008, according to its website.

MMX plans to spend at least 7.9 billion reais to increase its iron-ore production capacity fivefold to 53 million metric tons by 2016 as it taps rising demand from China and other emerging nations. The company is building its 2.4 billion-reais Sudeste port in Rio’s Sepetiba bay, scheduled to start operating in the first quarter of 2013, with an initial capacity to ship 50 million tons of iron ore.

Strategic Investors

Ferrous was in talks with potential strategic investors and lenders to help fund a $4 billion expansion, two people with knowledge of the matter said in March. The company had discussions with mining companies and steelmakers in China, Japan, Korea and Brazil, the people said at the time.

Ferrous had previously outlined plans to produce iron ore at a rate of 25 million tons a year by the end of 2013, with an expansion to raise that to 50 million tons by 2016. It previously estimated the cost of the first stage of its Viga project at $3 billion.

Brazil is the world’s largest exporter of iron ore behind Australia.

--Editors: Robin Saponar, Charles Siler

To contact the reporters on this story: Jesse Riseborough in London at jriseborough@bloomberg.net; Saijel Kishan in New York at skishan@bloomberg.net; Juan Pablo Spinetto in Rio de Janeiro at jspinetto@bloomberg.net

To contact the editors responsible for this story: John Viljoen at jviljoen@bloomberg.net; Dale Crofts at dcrofts@bloomberg.net


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