OZ Minerals, BHP ready to ride the copper price wave
It was all over bar the shouting at OZ Minerals - when the shouting started.
By the end of last weekend, chairmen had met, bankers were on the same page, lawyers were drawing up the paperwork and investor relations teams were ready to start selling the deal to shareholders. It was deal teams working around the clock.
The plan was for BHP to lob a revised proposal - around the $28 to $29 a share mark - and for OZ Minerals to grant the Big Australian due diligence and an agreement to act in good faith.
It was all very cordial. BHP was over its poke in the eye from three months earlier, OZ was talking confidentially (a change from its disclose first, talk second approach) and they were homing in on the agreed price.
Then came the hold up. The battleground on Wednesday, days after the bid was supposed to have landed and diligence started, was two-fold: price and OZ’s recommendation to shareholders.
BHP was understood to be pushing for a board recommendation. While its bid would be non-binding and subject to due diligence, it wanted a clean deal done via a scheme of arrangement and OZ’s board to recommend shareholders vote in favour.
OZ was fine with that ask - but only at a price. And was BHP’s new price high enough?
That’s the question the board was stewing on Wednesday.
So, as always, it comes back to price. The two sides said they would work through Wednesday night to come to an agreement by market open on Thursday. OZ spent Wednesday in a trading halt, conscious that it was close to agreeing terms.
‘Soft’ approach
A potential compromise would be for OZ to recommend the deal based on the current copper price (about $US3.85 a pound), but reserve the right to change its mind should there be material movement.[The copper price has been bouncing around, most recently rallying to a 3½ month on expectations that big user China’s opening up].
Meanwhile, fund managers reckon BHP’s bid at $25 in early August is worth close to $27 today, given movements in the copper price and US dollar. What hasn’t changed is the number of OZ suitors (one) and its funding requirements (plenty).
Whatever OZ and BHP agree overnight, it’s the sort of deal where the valuation debate will ride the copper price until the very end, which could be months away. At best, it could take Barrenjoey and Citi-advised BHP six months to complete the transaction. Macquarie Capital and Greenhill are in OZ’s corner.
The situation could be similar to WA nickel miner Western Areas, where IGO had an agreed deal only to bump its offer by 15.2 per cent to get late shareholder support and past the independent expert’s report.
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