Whitehaven Coal Ltd. (WHC) said Australian mining magnate Nathan Tinkler scrapped his takeover proposal that valued the company at A$5.3 billion ($5.5 billion), triggering the biggest drop in its shares in more than a year.
Whitehaven was advised that a “formal binding proposal of A$5.20 a share will not be forthcoming,” the Sydney-based company said today in a statement. The shares have traded under the offer price since a group led by Tinkler, Whitehaven’s biggest shareholder, made the conditional cash bid on July 13.
Tinkler, an electrician-turned-miner, had been in talks to raise funds to acquire Whitehaven, owner of seven coal assets, as coal prices fell and banks tightened lending. The deal, the biggest announced in Australia this year, according to data compiled by Bloomberg, fell over as Resources Minister Martin Ferguson called an end to the nation’s mining boom.
“He would have had great difficulty raising the finance, which is understandable given what is happening in commodity and financial markets,” Andrew Pedler, analyst at Wilson HTM Investment Group, said by phone from Brisbane. “Even parties who normally back him would have been concerned given the outlook for the coal markets.”
Whitehaven shares fell 11 percent to A$3.09 at the close in Sydney, the biggest drop since May 16, 2011. The company, which today reported a 13 percent drop in underlying profit, said June 13 it had rejected an unconditional offer from Tinkler that didn’t disclose terms.
The value of natural resource transactions, including mining and energy deals, in Australia so far this year has slumped to A$14 billion, down from A$47.3 billion for the same period last year, according to data compiled by Bloomberg.
While the data room has been closed, the Whitehaven board will “always assess carefully firm proposals which are in the best interests of shareholders,” the company said. Tinkler’s group didn’t give Whitehaven a reason why the bid wouldn’t proceed, Chief Executive Officer Tony Haggarty told reporters today on a conference call.
Tinkler said Aug. 6 he wouldn’t reduce his offer price because holders would be unlikely to accept a lower bid. The comments were made after two people with knowledge of the matter last month said he was considering lowering the price after Whitehaven’s shares slumped and coal prices weakened.
Tinkler’s group advised Whitehaven that about 48.3 percent of the company’s shareholders had expressed interest in becoming stakeholders in the new company, subject to a satisfactory due diligence process, Whitehaven said July 13. Another 16.7 percent of shareholders may also join, equating to 65 percent.
Tinkler had two main hurdles to overcome to get the deal done, Paul McTaggart, a resources analyst with Credit Suisse Group AG, wrote in an Aug. 2 note. The first was to convince 65 percent of shareholders to transfer their Whitehaven shares into a company that wasn’t publicly traded and contribute further equity, he said. The second was to raise an estimated A$1.85 billion to buy out the remaining 35 percent of investors.
Assuming additional debt of A$1.85 billion, the company’s gearing will rise to 70 percent, a level the company would find “challenging” to support, McTaggart said.
Tinkler’s group had conditional letters of support from UBS AG (UBSN), JPMorgan Chase & Co. and Barclays Plc. They had agreed in principle to provide about A$2.5 billion in loans to help fund the deal, people familiar with the matter said June 18.
Thermal coal at the Australian port of Newcastle, the benchmark price for Asia, fell 17 percent in the three months to June 30, the worst quarter since 2009, according to IHS McCloskey, a coal-data provider. Queensland coking coal prices have dropped 17 percent since the offer was announced, according to Energy Publishing Inc. prices.
About 69 percent of Whitehaven’s production was thermal coal in the year ended June 30. Tim Allerton, a spokesman for Tinkler, declined to comment by e-mail, saying no statement would be made today.
At A$5.20 a share, Tinkler’s offer was priced at 3.69 times the assets, according to data compiled by Bloomberg. That compares with the median of 2.27 times for 10 comparable deals.
Tinkler’s business journey began when he sold his house in 2006 to help buy the A$30 million Middlemount coal lease in Australia’s Queensland state before selling it a year later to Macarthur Coal Ltd. for about A$465 million in cash and shares.
In May 2008, Tinkler sold his Macarthur stake to ArcelorMittal, the world’s largest steelmaker, at a profit of about A$445 million. He then bought Maules Creek from Rio Tinto Group for A$480 million in August 2010. Seeking funds to develop the project, Tinkler listed Aston Resources, containing Maules Creek, in August 2010, raising A$400 million.
Tinkler and his companies also own coal and metals mining projects, infrastructure investments, a horse-breeding operation, and the Newcastle Knights, a rugby league team in the Australian coal port of Newcastle.
Whitehaven’s independent committee appointed to study bids after Tinkler’s initial approach was advised by Grant Samuel Corporate Finance and Corrs Chambers Westgarth. Tinkler Group was advised by UBS and BKK Partners Pty Ltd.
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