The committee of independent directors at Kazakhstan's Eurasian Natural Resources Corp. (ENRC) announced on May 17 that it has rejected a take-over proposal from the company's founders - alongside the state - despite a deepening corporate governance crisis and fresh accusations of corruption.
The statement from the Independent Committee of the Board of ENRC said that the $2.3bn proposal from the company's three founders - alongside the Kazakh government and sovereign wealth fund Samruk-Kazyna - for the 46% stake they do not own, "materially undervalues ENRC". The buyout consortium has been given until June 3 to make alternative proposals by the UK's Panel on Takeovers and Mergers, which oversees the company due to its listing on the London Stock Exchange.
Kazakh billionaires Alexander Machkevitch, Alijan Ibragimov and Pathokh Chodiev, announced on April 18 that they were considering a buyout, which could result in ENRC being delisted from the LSE. The Kazakh government owns an 11.65% stake, through the State Property & Privatisation Committee of the Ministry of Finance of Kazakhstan. Kazakhmys owns 26%, while ENRC holds a mirror stake in the rival mining giant.
The next day, the consortium made its initial proposal, now revealed to include 175p per share in cash, plus 0.231 of a share in Kazakhmys, reports Reuters. The Kazakhmys' shares - which would come from the government's 27% stake in the company - were priced at 338.4p at close of business on May 17. Kazakhmys has not yet announced its stance on the attempted buyout. Overall, the offer amounts to slightly over 253p per ENRC share, below the May 17 closing price of 272p, but above the 230p at which it was trading ahead of the April 18 announcement.
"We believe the current proposal materially undervalues ENRC, and we will use the extension to seek an improved and formal proposal," the chairman of the independent committee, Dr Mohsen Khalil, said in a statement. "The Independent Committee is committed to serving the best interests of minority shareholders through a professional, transparent and rigorous process, which incorporates the highest standards and principles of independence and integrity."
Analysts at Visor Capital write that continued pressure from corruption allegations against the company creates an incentive for the deal to go ahead. "We believe that the news is negative both for ENRC and its 26% shareholder Kazakhmys, as the consortium did not come up with what could be regarded as a fair buyout offer by the Independent Committee within the deadline. However, given the deepening investigation of corruption allegations, a buyout by a group of founders and the Kazakh government could be an alternative outcome for ENRC, we think."
The consortium is expected to use the time before the extended deadline to prepare funding for a new bid, which is expected to be financed by Russian state banks VTB and Sberbank.
The buyout proposal arrived shortly after the UK's Serious Fraud Office announced it was carrying out a formal investigation into contracts worth $100m awarded to a company linked to ENRC CFO, Zaure Zaurbekova. The company's activities in both Kazakhstan and Africa have come under scrutiny.
That has seen a series of negative headlines about the company follow. Several senior management figures have left, and Deutsche Bank and Morgan Stanley quit as advisers to the company in early May.
On May 10, a report by former United Nations secretary-general Kofi Annan's Africa Progress Panel criticised the Kazakh miner for "opaque concessions trading costing the Democratic Republic of Congo $725m". The accusation centres on a 2010 deal that saw ENRC take control of copper and cobalt mines allegedly sold below value.
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