Harbinger Bodes Badly For Sinosteel
The Age
Friday May 30, 2008
SINOSTEEL'S plan to take control of West Australian iron ore group Midwest through its $1.36 billion cash bid has taken another whack.
Fresh from having its bid sidelined by Midwest's $3.5 billion merger proposal with Murchison Metals, Sinosteel now has to digest the emergence of US fund manager Harbinger Capital with an 8.1% stake in Midwest. Harbinger is already a 20% shareholder in Murchison and was quick earlier this week to give its support for the Midwest-Murchison merger proposal. Its Midwest acquisition means it could emerge with 14% of the merged group, effectively blocking any ambitions Sinosteel has for full ownership. Harbinger has already made a fortune by investing in the Australian iron sector. It was an early supporter of Andrew Forrest's Fortescue Metals and continues to hold a 16% stake. Just how intent it is on blocking Sinosteel's Midwest ambitions is an open question since last week's revelation that Sinosteel was in talks to buy half Harbinger's stake in Fortescue for $2.2 billion. Harbinger's stake in Midwest was assembled in recent days at a total cost of $121 million, or just under $7 a share, with some of the purchases made at $6.85 a share on Monday - the day Midwest went into a trading halt pending the announcement of its merger with Murchison, one that implied a value for Midwest shares of $7.17 each. The Midwest-Murchison merger deal prompted Sinosteel, a 19.89% shareholder in Midwest, to declare on Wednesday that its conditional cash bid of $6.38 a share for Midwest would not be increased. It was suggested that without the declaration, Sinosteel would have effectively been bidding against itself because of the Midwest-Murchison merger deal. A merged Midwest-Murchison would produce 45 million tonnes of iron ore annually from the combination of the two companies' interests in WA's Mid West region, the state's second iron ore province. That compares with the initial target of 50 million tonnes a year that Fortescue has set itself from its new operation in the Pilbara. Midwest shares continued to trade well above Sinosteel's final (but extended) bid, at $7.06, up by 2? on the day. Murchison closed 1? higher at $4.15. Sinosteel has argued that Midwest shareholders would find the certainty of cash in its offer attractive compared with the uncertainty of the rival merger proposal. The arrival of Harbinger has put paid to that idea, for the time being at least.
© 2008 The Age
