Wesfarmers Ltd (ASX: WES) has reloaded with a takeover attempt of Kidman Resources Ltd (ASX: KDR), shortly after an unsolicited proposal to buy Lynas Corporation Ltd (ASX: LYC) was essentially rejected by the Lynas board.
Kidman’s major asset is a 50% interest in the Mt Holland lithium project based in Western Australia, which is jointly owned with one of the world’s largest producers and makers of lithium products, Sociedad Quimica Minera De Chi (NYSE: SQM).
Details Of Proposal
Wesfarmers is propoing to acquire 100% of outstanding shares in Kidman for $1.90 cash per share (the Proposal) by the way of a scheme of arrangement (Proposed Scheme). The offer price is a 47.3% premium to the closing price on 1 May 2019 of $1.29 a share and a 44.4% premium to the 60-day volume weighted average price and corresponds to a transaction value of approximately $776 million.
Wesfarmers has signed an Exclusivity Deed with Kidman which gives up to four weeks to undertake exclusive confirmatory due diligence. During this period, the parties will negotiate a Scheme Implementation Agreement (SIA), reflecting the key commercial terms of the Propsoal.
Kidman Board Approval
Unlike the attempt to takeover Lynas which was without the support of its board, Wesfarmers has the support of the Kidman board who intend to recommend shareholders vote in favour of the Proposed Scheme, providing there is no superior offer and the independent expert concluding it is in the best interests of Kidman shareholders.
Strategic Rationale
Wesfarmers Managing Director Rob Scott believes the transaction will allow Wesfarmers to benefit from the global uptake of electric vehicles while drawing upon the Wesfarmers’ Chemicals, Energy & Fertilisers (WesCEF) division’s ability to design, construct, commission and operate complex plants.
Funding
Wesfarmers intends to fund the transaction through its existing balance sheet capacity and debt facilities.
Rask Perspective
For some reason, Wesfarmers seem determined to make a move into rare earths one way or another. Unless the Wesfarmers board has better forecasting abilities than the rest of the market, I’m struggling to see how a miner with negative cash flow is a good investment at almost $776 million.
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Disclosure: at the time of writing, Andrew does not own shares in any of the companies mentioned.
