Straits Resources sees shareholder opposition to PTT offer

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PTT Group’s bid for Straits Resources’ [SRL:AU] coal assets may have hit a stumbling block as large shareholders in the target view the offer price as insufficient, dealReporter has learnt.

Merricks Capital, which owns slightly less than 10% of Straits Resources, is understood to consider PTT’s offer of AUD 1.72 per share for the coal assets as opportunistic. Merricks is said to be looking for around AUD 2 per share for the coal assets and is in the process of hiring advisors to search the market for a superior offer.

Merricks’ view is that the offer is opportunistic given that an expansion permit approval for Straits Asia Resources’ [SAR:SP] Sebuku mine is “several weeks” away. It believes that the permit would equate to a 30% increase in the value of Straits Resources’ investment in Straits Asia.

Sources close to PTT countered that with the approval expected before year-end, it is already priced into the bid. One source pointed to the USD 335m that PTT paid for its 60% stake in Straits Resources’ controlling stake in Straits Asia Resources last year, noting that the AUD 544m being offered now for the remaining 40% includes the value uplift due to the expansion at Sebuku.

It is understood that while Merricks would likely vote in favour of the demerger as it is a means of unlocking value in the company, it might be less inclined to vote in favour of the sale to PTT. The coal sale is structured as a scheme of arrangement, so it requires approval from 75% of votes cast and 50% of shareholders voting. The sale scheme is conditional on the demerger scheme being passed, but the demerger scheme is not conditional on the sale scheme.

Aside from Merricks, which has bought further shares in the market since the announcement of the deal earlier this month, claims are emerging that other shareholders – long-term investors – representing between 5% and 10% of Straits issued capital may be skeptical about the value being offered by PTT. One industry source monitoring the situation claimed that there are three shareholders voicing opposition to the offer, one of them a New York-based hedge fund.

It is understood that at least some of the major Straits shareholders have not been contacted by the company’s advisors despite their opposition to the deal, which was announced almost two weeks ago.

Three industry bankers remarked that PTT looks to be getting the better deal, and that shareholders are probably justified in looking for a better offer. However, they said that with the ownership structure in place after that initial deal, finding an alternative bidder that would be satisfied with a minority interest in both Straits Asia and the assets could be a challenging task.

Straits Resources did not return calls by press time.

In March 2009, at the time of the initial deal with PTT, Straits Resources chief Milan Jerkovic told this news service that between seven and ten parties had taken a detailed look at Straits Asia, and some parties had also shown interest and bid for ASX-listed Straits Resources. It has been suggested that a North American miner and an Indian company had taken a look at Straits Asia and the Sebuku project.

PTT had planned to increase production to 3 million tonnes at Sebuku for 2011, but this has been delayed due to poor weather conditions earlier this year. The ramp-up period will now likely be put off by another four or five months.

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