ENRC's founders in advanced stage of $4.7 billion offer
The proposal by Alexander Machkevitch, Patokh Chodiev and Alijan Ibragimov as well as Kazakhstan's government to take the company private would offer shareholders $2.65 in cash and 0.23 Kazakhmys Plc (KAZ) stock for each ENRC share held, the newly created Bidco group said.
The bidding group is "in the advanced stages of preparing a possible offer" equivalent to 234.3 pence a share at current exchange rates, according to its e-mailed statement yesterday. ENRC closed June 21 at 216.90 pence a share in London, giving the iron-ore and ferroalloys producer a market value of 2.79 billion pounds, and Kazakhmys at 269.4 pence.
The founders are seeking to take ENRC off the market five years after it sold shares in an initial offering. ENRC's stock has fallen about 50 percent the past year as the company fought corruption allegations related to operations in Kazakhstan and Africa.
Under U.K. takeover rules, the bidding company has until 5 p.m. London time today to announce a firm intention to make an offer, or that it won't. ENRC's founders received a three-week extension on June 3 to make a bid. This approach is basically the same in structure as the earlier planned offer.
The founding shareholders and Kazakh government, which hold almost 54 percent, sent a letter in May to an independent committee set up by ENRC's board detailing a cash offer at 175 pence, equal to $2.65 at the time, plus 0.231 shares of 26 percent-holder Kazakhmys. That was equivalent to 260 pence a share based on a 370-pence Kazakhmys price, the panel said May 20, concluding that the offer "materially undervalues" ENRC.
ENRC upgrade
Macquarie Group Ltd. upgraded ENRC to neutral and raised its target price to 236 pence "in anticipation of a formal offer being tabled," it said June 21. "Given the assurances provided to the ENRC board that the necessary approvals would be secured, we believe the bidding consortium will be in a position to table a firm offer on Monday."
A committee, set up by the ENRC board to assess offers for the company, asked for the extension after it received written assurances from the group it had made progress toward a bid. The committee requested the extension expecting any revised offer would take into account its view that the initial proposal was too low, it said then.
Raising funds
The founders are raising $1.6 billion to fund the cash component of the buyout, and the government is offering its 26 percent stake in London-based Kazakhmys, people familiar with the matter said last month, asking not to be identified because the information wasn't public, Kazinform has learnt from Bloomberg.
ENRC traces its roots to its founders' participation in the 1990s privatizations of Kazakh state assets that were gradually combined into a single group of companies and listed in London. Mehmet Dalman, named chairman in 2012 to improve governance and lead a reorganization following the corruption allegations, resigned in April and was replaced by Gerhard Ammann, former chief of Deloitte & Touche LLP's Swiss practice.
The U.K.'s Serious Fraud Office said April 25 it began an investigation into alleged fraud and bribery at London-based ENRC operations, including in the Democratic Republic of Congo.
Copper, cobalt
In 2010, ENRC took control of copper and cobalt mines in Congo that Israeli billionaire Dan Gertler acquired from the nation's government following their seizure from Canada's First Quantum Minerals Ltd. Anti-corruption groups including Global Witness criticized ENRC for acquiring the assets, saying Gertler got them at low prices because of close ties to President Joseph Kabila. Gertler denied buying them at below-market rates.
First Quantum sued ENRC, which settled in 2012 and agreed to pay $1.25 billion for First Quantum's share of the assets. In May, the African Progress Panel said in a report that the DRC lost out on about $1.4 billion in revenue by selling undervalued copper and cobalt deposits now controlled by ENRC and Glencore Xstrata Plc. (GLEN).
The figure represents a "small share" of total losses as state-owned companies underpriced assets that they sold to companies owned by Gertler from 2010 to 2012, according to the panel led by former United Nations Secretary-General Kofi Annan.