Nicholas Watson in Prague -

The Czech coal mining group New World Resources (NWR) always said it wouldn't raise its offer for Poland's only listed coal mine Lubelski Wegiel Bogdanka and in the end it didn't, allowing it to lapse after failing to get the 75% of shareholder votes needed. Given this is the second acquisition NWR has failed with in 18 months, analysts expressed relief it didn't feel pressured into trying to push this through at any cost - there are better opportunities in Poland and elsewhere.

In a statement, NWR said that the offer subscription period for Bogdanka shareholders closed on November 29 and "the acceptance threshold of 75% of Bogdanka's issued share capital was not met and the offer has therefore lapsed."

NWR didn't reveal the number of votes their offer received, but the deal was effectively dead when one of the Poland's biggest Open Pension Funds, PZU PTE, the second-largest shareholder of Bogdanka with 9.8%, told Bloomberg on November 25 that, "The difference between the price offered in the tender and our valuation of Bogdanka is so big that I doubt whether NWR is able to pay enough for us to exit the investment," a PZU official said.

NWR launched its hostile bid for the Polish coal mine on October 5, offering PLN100.75 per share in an all-cash offer worth €857m. The offer was attractive on several measures. This was a 13% premium to the pre-announcement closing price of PLN89.20. The IPO of Bogdanka just over a year ago was priced at PLN48 per share, while the Polish treasury ministry sold 46% of Bogdanka in March this year for PLN70.5 per share to Polish pension funds, meaning that NWR offered a 43% premium on top. The offer valued the firm at a price/earnings multiple of 18.1x, and on a cash flow basis about 8x Ebitda, which compared favourably with comparable transactions and trading multiples in the mining sector internationally.

However, the Polish side saw things differently, believing that it is too soon to see this thermal coal producer (NWR is predominately a coking coal producer), a jewel in the country's mining industry, sold off and the industry's long-term potential offers much greater upside than the PLN102 where the shares closed at today. Indeed, the shares had traded as high as PLN115 on October 25. "Given the strong industrial and strategic logic of our offer, this transaction was always going to come down to price," NWR's chairman, Mike Salamon, said in a statement. "The outcome further demonstrates NWR's record of strict financial discipline."

Petr Bartek of Erste Group, is one of several analysts who agrees with the second bit of that. "My feeling is it was good that NWR didn't raise the price. I feel this price reflected the current operations [of Bogdanka] and the upside potential."

However, others are not so sure either of Salamon's two remarks are entirely correct.

Fabianski instead of Fabian

On November 26, the chief investment officer at Aviva pension fund, Marcin Zoltek, told Reuters that NWR had proposed to him an equity swap for Bogdanka shareholders, offering three to four NWR shares, worth PLN103.2-137.6, for each Bogdanka share. NWR immediately issued a statement denying such deal was offered, but, as one analyst put it, "there's no smoke without fire."

It's also widely accepted in all quarters that as well as price, Polish nationalism played its baleful part in all this. Bankers working in the region, though not involved in this deal, all acknowledge that Poland remains a difficult place to do deals involving foreign clients and for this deal "the price wasn't right, and the politics wasn't right."

The government had already nailed its colours to the mast when Polish Deputy Treasury Minister Jan Bury told parliament on November 25 that the treasury, which holds 2.3% in Bogdanka, wouldn't vote for the deal "for sure." Given that the Polish government has tended to view the country's private sector Open Pension Funds, a pillar of the decade-old reformed pension system, as quasi-public institutions, it was clear to whom this statement was aimed at.

However, there are also legitimate questions to be asked about the way NWR has handled what was the first hostile takeover bid in Poland's history. Given these well-known Polish sensitivities, why, some ask, were the people running the bid - Salamon, Chief Financial Officer Marek Jelinek and, crucially, NWR's point man on the Polish projects, Chief Operating Officer Jan Fabian - all foreigners?

This is all the more surprising since Zdenek Bakala, the Czech tycoon behind NWR with 64%, has built a reputation (and fortune) as being one of the region's consummate dealmakers and touts NWR as being the Central European firm that will consolidate Central Europe's coal industry. Yet this is the second time he's failed with an NWR acquisition in 18 months: a planned extraordinary general meeting in April 2009 where NWR shareholders would've voted on a proposal to buy a 25%-plus-one-share stake in Ukrainian iron ore producer Ferrexpo that Bakala had bought at the depths of the financial crisis was abandoned when it became clear shell-shocked shareholders wouldn't bite.

Of course, Bakala has had the last laugh - he secured the stake in Ferrexpo at a total cost of £126.6m (€163.2m), or 86 pence per share; the stake is now worth £510.8m. "No, I wouldn't say this is bad for [Bakala's] reputation, in fact in the case of Ferrexpo it actually strengthened his reputation much more than the opposite," says Jan Tomanik of brokerage Wood & Co.

So where does Bakala and NWR go from here? Onwards and upwards, probably. Analysts say the real target for NWR is Jastrzebska Spolka Weglowa (JSW), the EU's largest coking coal producer, which the Polish government has said it is looking to sell off in 2011. JSW's CEO, Jaroslaw Zagorowski, said in an interview on October 25 that the treasury plans to sell PLN3.5bn worth of shares.

"Bogdanka was a facilitation of how to get into JSW, which is the key target for NWR," says Tomanik. "Their operations are literally right next to NWR's, with just the border dividing them - underground some tunnels are really that close that they could connect to each other in a short period of time, there would be true operating synergies."

A bid for another Polish target, WZK Victoria coking coal company, has been decided against apparently, but a team from NWR visited neighbouring Ukraine recently to assess opportunities there.