Coal: TerraCom lobs $175m takeover bid at ‘untouchable’ Universal
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The 33.5c per share offer (10c cash and ~0.6 Terracom shares) values South Africa-based thermal miner Universal at about $175m – a 31.4 per cent premium to the six-month volume weighted average.
The offer follows TerraCom’s $34.6m purchase of a big 19.9 per cent ‘blocking stake’ in Universal in October last year.
This would essentially be a merger of equals.
$130m market cap Universal reckons it will make $72m in earnings before interest, depreciation, tax and amortisation (EBIDTA) for FY20, down from $98m in FY19.
$160m market cap TerraCom, which has operations in Australia and Mongolia, recorded $94m EBIDTA for FY19 — a 246 per cent increase on the prior year.
TerraCom says the merged group would have a market cap of almost $300m, which is “of similar scale to current ASX 300 index companies”.
The miner says it already has “overwhelming support” from a number of key institutional Universal investors, with an additional 27.3 per cent of Universal secured under irrevocable undertakings.
This would bring its total holding to about 47.3 per cent.
But TerraCom acknowledged that the numerous failed takeover attempts since 2015 were likely to have frustrated Universal shareholders.
“TerraCom believes that these failed takeover attempts have wasted significant UNV management time and shareholder funds,” the company says.
“Consequently, TerraCom is making this announcement, with overwhelming support from UNV institutional investors, in order to give UNV shareholders the surety that TerraCom is committed to completing the transaction.”
The offer is scheduled to formally open in February, when the offer document is provided to Universal shareholders, and close in mid-March 2020.
This is the fifth takeover attempt in five years.
In 2015, major shareholder Ichor Coal made an unsolicited 16c-per-share cash offer for Universal — a 60 per cent premium at the time — which valued the whole company at about $80m.
But management rejected this lowball offer, and Ichor let the offer lapse in early 2016.
Meanwhile, Coal of Africa (CoAL) — now MC Mining (ASX:MCM) — had already offered a deal comprising 20c cash plus one CoAL share in November 2015.
This offer ultimately lapsed on 15 July 2016, having garnered over 95 per cent acceptances from Universal Coal shareholders.
It failed because, following several extensions, CoAL’s directors couldn’t prove that the combined entity would have enough working capital to relist.
Listed South African entity Afrimat briefly entered the fray in April 2019, offering 40c for each Universal share, but fell away quickly due to the “size and complexity of the proposed transaction”.
South African minnow Ikwezi Mining (ASX:IKW) says thermal coal markets are improving very quickly in 2020. Thermal coal prices (FOB Richards Bay for 6,000 kcal, NAR product), improved over the December quarter from ~$US61 per tonne ($91/t) to finish the quarter at about $US76/t. Prices have since strengthened to ~$US86/t in January 2020, it says.