Send an Email
Favourite Sites
  • Whitney Tilson
  • Recommended Booklist

  • Favourite Blogs
  • Calculated Risk
  • Reflections on Value Investing
  • "The market can remain irrational longer than you can remain solvent" - John Maynard Keynes

    Thursday, August 13, 2009


    Felix Resource ( FLX FLX.AX ) Yanzhou ( YZC ) Offer

    I have been writing about Felix Resource (FLX.AX AX:FLX) since late December 2005.

    Felix was trading at $1.91 at the time of my first post in December 2005. At the time I valued Felix at around $10. Felix grew and the global energy market changed. My later valuations were around $24-$25.

    Felix, today, announced the terms of a takeover proposal from Yanzhou Coal for about $18 (all amounts in AUD). Made up of $16.95 cash from Yanzhou, 5c worth of shares in a spinoff of their South Australian tenements and $1 worth of dividends.

    There is a $33.3M break fee payable by Felix if any Felix director does not support the proposal, a competing proposal is accepted or there is a material breach. Yanzhou has to pay if it can’t secure financing or in the event of a material breach. This break up fee is pretty low and does not materially block another bid.

    Felix directors are prevented from soliciting or encouraging other proposals, negotiating or discussing a proposal with 3rd parties and is not allowed to provide due diligence information to 3rd parties. However, if another proposal appears to be superior based on the statutory definition then directors can negotiate and share due diligence information.

    The proposal has to be agreed by Felix shareholders and by 2/3rds of Yanzhou shareholders in addition to 14 other conditions including Yanzhou securing finance.

    Yanzhou shareholders will be asked to approve the deal by mid-October, Felix will pay the first 50c dividend in late October. FLX shareholders will vote in early December and final consideration will be paid in late December.

    Overall this is a barely adequate offer. Yanzhou are paying a small premium based on FLX recent closing price and are securing a good 75% plus upside over the next few years. Felix major shareholders are getting the opportunity to sell out together preventing the kind of debacle that happened with Macarthur Coal (where one shareholder sells a blocking stake).

    Importantly the door is wide open for a serious better offer. There is plenty of time for one to materialize which gives FLX shareholders something of a floor. An offer nearer $24, would leave a reasonable 25% upside to the acquirer while paying a more reasonable price to current FLX holders.

    With Flannery and Duncan worth around $A500 million each, they have little incentive to hold out for a fair price of $23-$25 as judged by Macquarie and other mining commentators.
    Hang on in there private shareholders. If B.F was only worth say $5 million he would still be fighting like hell for a fair price.
    Analysts say that in 2 years the Felix arm will increase Yanzhou's earnings by as much as 37%.
    If this is a fair estimate we are bing sold down the river by our Directors.
    Remember,Yanzhou is huge compared with Felix, so a 37% increase in their earnings is a massive gain. That tells me they could afford to pay $A24, because Felix is the prime coal asset in Australia with all the coming new fields in the share price for nothing.
    We shall soon know. If B.F and his fellow Directors are right, no new offer will emerge, but in 2 year's time we will all be saying "they stole the Company from under our noses"
    Post a Comment

    << Home


    April 2003   May 2003   June 2003   July 2003   August 2003   September 2003   November 2003   January 2004   February 2004   March 2004   April 2004   May 2004   June 2004   July 2004   September 2004   October 2004   February 2005   March 2005   April 2005   May 2005   June 2005   July 2005   August 2005   September 2005   December 2005   April 2006   May 2006   June 2006   January 2007   December 2007   February 2008   April 2008   May 2008   June 2008   July 2008   August 2008   September 2008   October 2008   November 2008   December 2008   January 2009   April 2009   May 2009   July 2009   August 2009   September 2009   October 2009   January 2010   February 2010   April 2010   July 2010   August 2010   October 2010   November 2010   January 2011   February 2011   April 2011   June 2011  

    Disclaimer and Disclosure Analyses are prepared from sources and data believed to be reliable, but no representation is made as to their accuracy or completeness. I am not paid by covered companies. Strategies or ideas are presented for informational purposes and should not be used as a basis for any financial decisions.
    To reduce Spam click here for my email address.

    This page is powered by Blogger. Isn't yours?