Investors are sceptical about whether a reduced takeover offer for Africa-focused iron ore hopeful Sundance Resources by China’s Hanlong Mining will get over the line.
As iron ore prices have tumbled this year so has China’s appetite for takeovers, with Sundance forced to accept a fresh $1.37 billion offer, one fifth less than Hanlong’s original bid at 57 cents.
The 45 cents a share offer was better than the 40 cent figure the market was speculating about.
Chinese regulators ordered the lower price.
Shares in the iron ore mine developer improved two cents, or 7.5 per cent, to close at 36 cents on Monday, well below the offer price, indicating investors were still sceptical about the deal will get over the line.
A final decision is needed by the Chinese Development Bank, which will provide funding, and from China’s National Development and Reform Commission.
Sundance chairman George Jones said last week he was frustrated that Australia’s Takeovers Panel allowed Chinese companies from making bids that were conditional on approval from Beijing.
He said Sundance had decided to accept the reduced offer after extensive talks with Hanlong and after considering a range of factors, including changes in financial markets since the initial offer was made in October 2011.
All exclusivity provisions have also been removed allowing the company to seek alternative offers.
“Given these changed circumstances, the board also took into account the current Sundance share price, (and) the feedback it has received from shareholders,” he said.
Sundance is developing the high profile Mbalam Iron Ore project in west Africa, but would be unable to find the $4.7 billion itself needed to do it alone.
RBS Morgans resources analyst James Wilson said Sundance had to accept the deal, as iron ore markets were currently depressed and that the company had an obligation to do what was best for its shareholders.
Mr Wilson also said the reduced takeover offer was still a good vote of Chinese confidence in the Australian resources sector at a time when market were worried about growth slowing Chinese growth.
“The greatest amount of negativity, downplaying of markets about iron ore prices occurs usually at a time when you see the greatest amount of M and A (mergers and acquisitions,” he told AAP, citing the recent bids for Northern Iron.
“If that (the Sundance deal) gives you any indication of what Asian markets think about what the future of iron ore is, you should think it’s quite positive … in theory.”
Sundance said Hanlong had committed to paying a break fee of about $14 million if it tried to further reduce its offer price and if Sundance terminated the deal.
