Arrium, which rejected a $1.2 billion offer from a Noble Group-led consortium, headed for its biggest decline in six weeks after the bidders decided to drop their takeover attempt.
The stock fell as much as 15 per cent to 67 cents, set for its biggest decline since September 13, and traded at 68 cents, well below the 75 cents a share initial bid. The benchmark stock index was down 0.8 per cent.
The group, having raised its offer by 17 per cent to 88 cents a share, decided to walk away because Arrium's board rejected the second bid and refused to engage, Martin Debelle of Citadel PR, an external spokesman for the consortium, said yesterday. Deutsche Bank cut its recommendation on Arrium to sell from hold and predicted the stock will retreat toward its 12-month price target of 71 cents a share.
Buying the steelmaker, which changed its name in July from OneSteel Ltd. to reflect its increasing focus on iron ore, would have given Noble and Posco, Asia's third-biggest steelmaker by output, a potential 9 million metric tons in annual supply of iron ore as well as access to as much as 13 million tons a year of port capacity in South Australia.
"In the absence of the offer, Arrium's share price should trade in line with our target price, which incorporates a discount given its debt position," Deustche Bank analysts Emily Behncke and John Hynd wrote in a research note dated yesterday. "We remain concerned about Arrium's debt position, its exposure to the volatile iron ore price," the Australian dollar exchange rate and likely asset/goodwill writedowns.
Business as Usual
Sydney-based Arrium had net debt of $2.14 billion as of June 30, according to data compiled by Bloomberg.
It is "business as usual" for the company after the bid was terminated, Arrium's external spokesman, Tim Duncan, said yesterday. The 88 cents-a-share offer was "highly conditional" and involved "significant transaction risk" as the group needs to hold talks with Arrium's lenders, the company said in an earlier statement yesterday.
Iron ore accounted for more than half of Arrium's earnings before interest, tax, depreciation and amortization in the financial year ended June 30, data compiled by Bloomberg show. Arrium rejected the initial 75 cents a share bid on October 1. Since then, the steelmaking ingredient has gained 14 per cent to $119 a ton.
"They were probably right to reject both offers particularly the first low-ball one," Gavin Wendt, senior resource analyst at Mine Life Pty in Sydney, said yesterday. "But this does place pressure on the company to deliver what they say they will and the share price is likely to reflect that."
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