Kazakh consortium makes revised offer to ENRC shareholders

By bne IntelliNews June 24, 2013

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A consortium formed by the founders of Eurasian Natural Resources Corp (ENRC), in tandem with the Kazakh government, has made a new offer to buy the company. While it would offer minorities a lower value deal than a previous bid rejected in May, 26% shareholder Kazakhmys conceded it may be the best option available.

The new offer, announced on June 24, values ENRC at around GBP3.043bn. Kazakh mining giant Kazakhmys said in a statement that while it considers the offer may undervalue ENRC, acceptance is "the best alternative" for Kazakhmys and other minority shareholders.

Eurasian Resources Group B.V., a newly incorporated company set up by ENRC founders Alexander Machkevitch, Alijan Ibragimov, Patokh Chodiev, alongside Kazakhstan's State Property and Privatisation Committee has been trying for several months to buyout minorities to de-list ENRC from the London Stock Exchange (LSE) as a corporate governance crisis and fraud probe by UK authorities sends its share price plummeting. The consortium, which currently owns 53.9%, is offering $2.65 in cash, plus 0.230 Kazakhmys shares, for each ENRC share.

Based on Kazakhmys' closing share price on June 21, the deal values ENRC's shares at about GBP2.34. That's around 7.5% lower than the offer made in May, since Kazakhmys shares have dropped 20% since the original offer, and the dollar-pound exchange rate has also dropped. The offer is also conditional upon Kazakhmys agreeing to sell its 26% stake.

Kazakhmys said in its statement: "The board of Kazakhmys believes that the offer may undervalue ENRC and its assets but ... has concluded that there is no prospect of obtaining improved terms ... Moreover, the board considers the prospects of realising greater value from ENRC in the short to medium term to be remote and the risks of further erosion in value to be considerable... The board believes the offer is the best alternative open to Kazakhmys and other ENRC minority shareholders."

Visor Capital writes in an analyst note: "We believe that the news is negative both for ENRC and its 26% shareholder Kazakhmys. We believe if the consortium has failed to come up with the improved offer, it may result in ENRC's Independent Board declining the offer. We understand that even if the offer is declined, the consortium may still remain firm with its bid, having the "green light" right for the transaction to pass to Kazakhmys."

ENRC's founders announced on April 23 that they were considering a buyout of the company, which could result in it being delisted. The Kazakh government joined the consortium shortly afterwards.

ENRC's committee of independent directors on May 17 rejected the consortium's initial offer, which proposed a price of 175p per share, plus 0.231 of a Kazakhmys share. The offer amounted to slightly over GBP2.53 per ENRC share, which the committee chairman Dr Mohsen Khalil said at the time "materially undervalues ENRC".

The push to take ENRC private kicked off as the company's operations in both Kazakhstan and Africa came under increasing scrutiny. The UK's Serious Fraud Office has launched a formal investigation into contracts worth $100m awarded to a company linked to ENRC CFO Zaure Zaurbekova.

ENRC has the largest iron ore mining and processing enterprise in Kazakhstan, and is the world's largest ferrochrome producer. It is also a major producer of alumina and has substantial reserves of chromium, manganese, iron ore, bauxite and coal. In addition to its operations in Kazakhstan, ENRC has operations in China, Russia, Brazil, the Democratic Republic of Congo, Zambia, Mozambique and South Africa.

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