WMR - WMC Resources

[Investor]

Re: WMC $13.50 ?

Also in The Australian today:

BHP calls Rio's bluff with deadline
Andrew Trounson
May 27, 2005

THE world's largest miner BHP Billiton knocked the speculative wind out of the share price of its $9.2 billion takeover target WMC yesterday, when it threatened to walk away from the bid at the end of next week.

Frustrated with 11 weeks of waiting for his bid to gain traction as speculators continued to punt on a counter-bid from Rio Tinto, BHP chief executive Chip Goodyear finally called the market's bluff.

Amid widespread expectations that BHP would again extend the time frame of its offer, Mr Goodyear instead warned that unless BHP secured more than 50 per cent of his target the bid would close on schedule on June 3. And he kept the bid price unchanged at $7.85 a share.

"Should the offer lapse, we will continue to follow our clearly set-out strategy focusing on value-creating opportunities," Mr Goodyear said.

That unnerved speculators, who rushed to sell their WMC shares.

Having last month traded as high as $8.14 a share on red-hot talk of a counter-bid from Rio, WMC shares fell 7c to $7.83, the first time they have finished below BHP's offer price since March 8.

There was heavy turnover, with 35.8 million shares -- or about 3 per cent of the stock -- changing hands. Ahead of BHP's announcement hedge funds were believed to control over 30 per cent of the company.

"To me it indicates that the game is over," Paul Xiradis, director at fund managers Ausbil Dexia, told The Australian.

But BHP hasn't given WMC shareholders much time to sell, with the bid due to close at the end of next week. For US investors there is even less time, as Monday is a public holiday there.

So far BHP's bid has secured it only 4.5 per cent of WMC, though it holds an additional 4.3 per cent economic interest through a swap deal with its advisers, Deutsche Bank. If BHP does get to 50 per cent by June 3, its bid will automatically be extended by a further two weeks.

Reiterating that he believed his bid to be "full and fair", Mr Goodyear said "WMC shareholders now need to make a decision."

WMC's board has already endorsed the bid, and in a letter to shareholders yesterday, chairman Tommie Bergman said there had been no other approaches from a rival bidder.

"In the 11 weeks since the receipt of BHP Billiton's offer, your board hasn't had any other approaches," Mr Bergman said.

He warned that WMC's share price might fail if BHP's bid lapsed.

Since trumping Swiss-based Xstrata's $7.00 a share bid in March, BHP's bid has been dogged by persistent speculation of a rival offer, most likely from Rio.

Rio hasn't made it any easier for BHP by refusing to rule out a bid.

And Rio was at it again yesterday, a spokesman declining to comment.

WMC is a key asset in the global mining game.

Rising demand from China, Brazil and India has put pressure on tight mineral and metal supplies.

WMC is the world's fifth-largest nickel producer and boasts the world's single largest uranium deposit at its Olympic Dam copper and uranium mine in South Australia.

The company plans a massive, $5 billion-plus expansion at Olympic Dam that would double copper production and treble uranium output.

 

[Warren Buffet II]

Re: WMC $13.50 ?

My comments:

Looking at the supply and demand equation and the fact that most uranium buyers will be governments with buying power who must buy at whatever price they have to pay because they have already built the new plants, I would say that BHP is getting a bargain at $7.85 for WMR. Yet, the hedge funds will deliver WMR to BHP at this price and BHP will extend the bid by another 2 weeks, after passing the 50% holding mark on June 3, unless another bidder emerges at the 11th hour.

Investor,

I do now know much about this deal and I do not hold WMR anyway, but I read a lot about many companies and this deal got my attention this week. I see in your comments that you believe the hedge funds will deliver WMR to BHP but how can they do that if they only control 30% of the company ?

And there has been massive sell this week which I believe are from Hedge funds, so that means less than 30% control? who else is going to sell?

Any comments?

WBII

 

[Investor]

Re: WMC $13.50 ?

Investor,

.. who else is going to sell?

WBII

This is what Warren Buffett calls "The Institutional Imperative". A suggestion that such institutions often move in "herd like" behaviour. All it takes is 2 to 3 large institutional shareholders to start the sell and others will probably follow. There is lower risk of standing out like a sore thumb by moving with the pack. That way, the excuse is "everyone else was doing it." More on this later in the Buffett thread.

However, the institutional shareholders have already "booked" the WMR share trade profits into their performance tables and will not want to risk damaging that "performance" by risking a price fall by holding on. Different for me - I do not have anyone to report to but myself - I can afford to risk short term price falls for the potential of longer term gains (I enjoy the challenge of pitting my own analysis against the market's - you might call it greed but I merely enjoy the challenge).

BHP's appointed investment bank was busy buying yesterday and today in the open market. By now, BHP might have collected 10% (includes the derivatives). If it collects all the hedge funds selling, it will not take much to reach tipping point. However, WMR might still end up merely as a subsidiary of BHP. I am happy either way.

WMR's board of directors are selling their own shares to BHP next week unless another bid emerges.

Here is what The Age says:

BHP warns 'last chance' over WMC
By Barry FitzGerald
Resources Editor
May 27, 2005

BHP Billiton has cracked the whip over WMC Resources shareholders, telling them that its slow-moving $9.2 billion takeover offer was all they would be getting and that its bid would not be extended beyond next Friday unless it had more than 50 per cent of WMC in the bag.

The get-tough move by BHP means it has withstood pressure from some quarters to sweeten the offer to take account of booming uranium prices or to at least make it more tax friendly by offering a scrip alternative.

Although its bid is more than 11 weeks old and is endorsed by WMC directors, BHP's offer has attracted acceptances for only 4.49 per cent of WMC. Most WMC shareholders, including the hedge funds that hold 30 to 40 per cent of the company, showed no inclination to accept while there was a chance of a counter-bid.

Speculation that Rio Tinto would take on BHP and make a counter-bid has been enough to keep WMC shares trading at levels above the BHP bid price of $7.85 a share. Rio has not felt the need to help BHP's cause by ruling itself out as potential counter-bidder.

BHP's decision to stampede hedge funds and other shareholders into accepting its offer by next Friday is not without risk, as it now needs to get to 50 per cent of the company by next Friday. Should it get there, it will be able to declare the offer unconditional, while the bid itself is automatically extended by two weeks.

The sharemarket yesterday gave BHP good reason to believe its tactic would work. WMC shares fell 7 ¢ to $7.83 on heavy turnover of 35.8 million shares. That is the first time the stock has closed below the bid price of $7.85 since BHP launched the offer on March 8, knocking out Zug-based Xstrata's $7-a-share bid (ex dividend) in the process.

BHP chief executive Chip Goodyear said WMC shareholders now needed to make a decision. "We believe that our cash offer of $7.85 per share is full and fair. All the necessary regulatory approvals have been received and shareholders have been given sufficient time to allow them to assess the merits of our offer."

He said it was not in the interests of BHP or WMC to further extend the offer. "Should the offer lapse, we will continue to follow our clearly set out strategy focusing on value creating opportunities," he said. The market believes that in the event that it does not get WMC, BHP is likely to buy back its own shares.

WMC itself became something of a cheer squad for the BHP tilt yesterday. WMC chairman Tommie Bergman said the offer represented "excellent value" and that since the offer was announced, no other approaches had been made. He said directors would be accepting for their own shareholdings, without saying when, but only if a superior offer did not emerge.

The company warned that its share price could fall below the offer price if BHP's bid lapsed.

WMC managing director Andrew Michelmore has the biggest shareholding among the directors. He was last listed as holding 556,128 shares, worth $4.3 million at BHP's bid price. Executive director and executive general manager for nickel Alan Dundas holds 311,284 shares worth $2.4 million.

Although more than 500 WMC corporate jobs are likely to be lost on BHP being successful, insiders said yesterday there was relief that BHP had finally achieved some momentum in its offer.

 

[Investor]

Re: WMC $13.50 ?

Investor,

.. who else is going to sell?

WBII

Also, most retail investors would sell to BHP, because not many people use DCF analysis.

To be fair, $7.85 is a tidy profit from the $5 a year ago, especially when special dividends of $0.20 are taken into a/c. A 61% profit excluding the ordinary dividends that were paid.

 

[Investor]

Re: WMC $13.50 ?

BHP routs Rio and even outplays the hedge funds
By Alan Kohler, The Age
May 28, 2005

Leigh Clifford seems to be that bidder at the auction who has his paddle poised but is paralysed by indecision. The timorous Rio Tinto chief is looking across the room at the lean, aggressive-looking American who has just barked out the last bid, and is muttering to himself: "Damn, I should have bid. But that bloke looks so determined what's the point? Oh well, I'll bid on the next one."

Except there is no next one like WMC Resources.

The strangest thing about the auction for WMC, apart from the fact the company was split and put up for sale by its board in the first place - which is one of the strangest things in the world - is the absence of Rio.

You would think it needs WMC more than BHP Billiton: it is about to run out of uranium in the Northern Territory and Namibia; in about five years it will go from supplying 10 per cent of the world's uranium to zero.

With this in mind, CEO Leigh Clifford dispatched due diligence teams to look over WMC, especially the Olympic Dam uranium/copper mine. He then watched meekly as Chip Goodyear made a decisive play and sent the original bidder, Xstrata, packing.

Then, on Thursday, the hedge funds were sent packing when BHP's Chip Goodyear said the bid would definitely close next week if BHP didn't get 50.1 per cent. The funds had placed a perfectly logical bet on a Rio counter-bid, taking WMC's price as high as $8.14 - nearly 30 ¢ above the BHP offer - but they lost the bet.

As they would say in real estate, Goodyear has played a beautiful auction and comprehensively defeated Leigh Clifford.

Perhaps it's because the talk around the industry that he is planning to retire within two years is correct, and his mind is on more short-term matters.

Why Rio stood out of the auction is not actually known because, unlike Coles Myer's John Fletcher, Clifford has chosen not to share his thoughts on the subject. (Fletcher put out a statement this week explaining why he had not bid for Foodland - leaving it to Woolworths to overpay alone. It was a good idea: Roger Corbett of Woolworths had a victory but Fletcher doesn't look like a loser.)

In any case, it looks a crucial lost opportunity for Rio Tinto: BHP is on the threshold of an acquisition that will give it as decisive a lead over Rio as Woolworths is opening up over Coles Myer.

Hedge funds, which now own around 30 per cent of WMC, will accept BHP's price next week and tear up their betting slips with a mild curse.

Meanwhile the polling of retail investors, who together own 20 per cent, suggests that half will accept and half will not. Meanwhile, most fund managers will probably accept next week as well.

That means unless Rio belatedly stirs into action, BHP Billiton will have between 50 and 90 per cent by the end of next week and will declare the bid unconditional.

Mopping up the rest will be helped by holding the bid open until after July 1, because a lot of retail investors want to put off accepting until the new tax year.

At the same time as the mop-up is happening, as I understand it, at least the top two people in each WMC operation will be replaced by BHP people.

Apparently the need for some cultural realignment, plus the opportunity to inject a wave of career development and movement into BHP's global ranks, is too great to ignore, so few if any senior WMC people will be kept.

Six Australian mining operations will join the BHP portfolio, so six homesick expatriates spread around the BHP empire - upon which the sun never sets - will get to return home.

This apparently will include Olympic Dam, which is being successfully managed by Seamus French and Bruce Farmer (a former Rio executive), even though BHP has no uranium operations of its own.

But as WMC is dismembered and consumed by BHP, it is worth reflecting on the extraordinary sequence of events that got us to this point.

Five years ago BHP, then managed by Paul Anderson, approached the then WMC chief Hugh Morgan to discuss a takeover.

According to Alcoa, WMC's alumina partner, Morgan then approached Alcoa to act as a white knight. Alcoa proposed a bid but it wasn't enough.

The demerger plan was hatched as a means of forcing Alcoa to make a firm bid at a higher price, but it didn't work: its chief Alain Belda refused in a huff. Morgan desperately tried to get bids out of BHP, Rio and Anglo American, but failed.

So the demerger had to go through: Hugh Morgan retired with an explosion and WMC's adviser Deutsche Bank got $22 million in fees (which it wouldn't have got because there would have been no bid to defend against).

If WMC had been kept whole - with Olympic Dam, nickel and the alumina cash flow - it would now be looking to expand, perhaps bidding against Xstrata for mining assets around the world.

As it is, a great Australian company that had been run down, but was in the process of becoming great again, was destroyed.

 

[Investor]

Re: WMC $13.50 ?

The Daily Resource
By Dave Forest
May 27, 2005
www.caseyresearch.com

Are the world’s largest national uranium reserves being opened up to mining? That’s the message that came from Australia yesterday, with the federal government calling on Aussie states to end bans on yellowcake extraction. "At a time when export prices are off the charts and we need the exploration dollars,” Industry Minister Ian Macfarlane told The Australian, “potential investors must look at a jurisdictional map of Australia and think it's all too hard and confusing."

It indeed looks the world will increasingly need that uranium, with China’s SinoCast China Business Daily News reporting that the National Development and Reform Commission of China has just approved new nuclear reactors in the northeastern Jilin province. The new capacity will reportedly total 5GWe.

 

[Investor]

Re: WMC $13.50 ?

From The Weekend Australian:
Andrew Trounson
28may05

WMC shares continued to weaken yesterday with hopes of a late counter-bid to BHP Billiton's $9.2 billion offer all but dashed.

BHP brought matters to a head this week, refusing to extend its offer and warning that unless it secured 50 per cent of WMC by the end of next week it would walk away from its $7.85-a-share bid.
That was enough to spook speculators who had been punting on a rival bid from Rio Tinto. Having shed 7c on Thursday, WMC shares gave up a further 1c to finish at $7.82, their lowest close since BHP launched its bid in March.

Brokerage Merrill Lynch tipped the bid as a done deal with a late counter-bid unlikely. Mining analyst Vicky Binns said there were no indications that Rio or Canadian nickel producer Inco were going to bid, and that Anglo American boss Tony Trahar had made it clear he wasn't interested in acquisitions at a time of high metal prices. - note that this rules Anglo American out as a potential bidder for ZFX - speculation on the ZFX thread.

Having previously touted the possibility of a counter-bid, Commonwealth Securities said there was now little chance of a rival offer.

"The risk of losing this takeover premium now outweighs the risk of potentially higher bids," CommSec said.

WMC chairman Tommie Bergman will reiterate his recommendation that shareholders accept the offer when he fronts the annual general meeting in Melbourne on Monday.

BHP's bid is due to close on June 3, but will be extended by two weeks if it secures 50 per cent. BHP yesterday increased its holding to 5.2 per cent, which, combined with an economic interest held through a swap deal, gives it 9.5 per cent.

But while BHP appears set to win its battle for WMC, it faces another in Peru where protesters have forced it to close its Tintaya copper mine indefinitely.

Protesters are demanding that BHP increase its agreed $1.5 million investment in the area to $20 million. BHP said it had invested $2 million in local projects. Some 2000 people rallied at the mine on Tuesday, vandalising mine property.

Local police claim the protest has been whipped up by the Shining Path Marxist guerilla group, which has largely been defeated since the capture of its leader in 1992.

According to police, a Shining Path pamphlet called on locals to "rid our land of treacherous dogs and these wretched gringos who steal our resources".

Tintaya accounts for less than 1.5 per cent of BHP earnings.

 

[Investor]

Re: WMC $13.50 ?

In The Australian newspaper today:

Robert Gottliebsen

BHP's $7.85 bid for WMC was significantly above the low bids from Xstrata and will be sufficient to gain strong institutional support. But in the unlikely event that BHP does not secure 50 per cent by Friday evening the bid will be withdrawn and WMC shares will fall sharply. Of course, any big fall will doubtlessly cause Rio Tinto to redo its sums.

If BHP gets 50 per cent of the stock it will declare its bid unconditional and remaining WMC shareholders will need to decide whether to stay with a WMC minority position for the longer term. Those who decide not to accept, again face the near certainty that their shares will fall in the short term.

Longer term, any independent WMC shareholders are staking their fortunes on uranium. I think it likely that uranium will be one of the world's most valuable minerals because China and India are swinging to nuclear and the US is likely to follow.

The independent report valued WMC at $8.24 using a low uranium price of $US22 a pound. A more realistic price would be above $US30 a pound which would make WMC worth above $9. Some individual WMC shareholders have big capital gains tax liabilities and may prefer to ignore the share price fall and ride the uranium boom.

WMC tried to get BHP to offer a share exchange alternative but the big Australian refused. Because of the likely WMC share price fall, BHP will probably win 100 per cent control. But BHP is an ethical company and if there is a significant minority stake in WMC they will not be raped.

The current stories coming out of Olympic Dam say that the former Billiton elements in BHP have won the internal battle and will remove top Olympic Dam expertise and try to control Australian uranium production from the copper operation in Chile. If these stories are half right then BHP shareholders will be grateful for a WMC minority stake which would prevent BHP from taking such a big management risk, given it has no experience in uranium production.