Bauxite Resources shares are worth at least another 2c on what a hostile bidder is offering, an independent expert report says.

The report by BDO into Mercantile Investment Company’s (ASX:MVT) 9c offer for 50 per cent of shareholders’ stock says it undervalues the business and doesn’t provide enough of a premium for a change of control.

The report valued the company (ASX:BAU) at 11c – 13.3c, with a sweet spot of 12.1c, and found the offer was nether fair nor reasonable.

The board is urging shareholders to reject the bid.

Bauxite CEO Sam Middlemas told investors the board, which controls 27.8 per cent of the stock, plans to reject the offer.

Bauxite shares were flat at 8.7c on Tuesday morning.

The offer, which would give Mercantile control but isn’t a full takeover bid, has only pushed Bauxite’s shares a cent or two higher than where they were before. Pic:

Mercantile owns 3.7 per cent of Bauxite and has its eye on the company’s $16.2 million in cash reserves.

Bauxite said last week it would give $10.7 million back to shareholders if they don’t accept the offer.

The independent report said the offer didn’t adequately reflect Bauxite’s future prospects, Mercantile’s intentions, once it gained control of the company, weren’t clear, and funding for the deal was uncertain.

The report raised the prospect of a proper takeover bid appearing but the board hosed down that idea, saying they’d had no approaches nor were any discussions underway.

Bauxite has been contacted for comment.