ASX-listed coal miner Universal Coal has urged shareholders not to take any action around a proposed takeover offer from fellow ASX-listed company TerraCom.

TerraCom last week announced its intention to buy South Africa-focused Universal for A$175-million, offering Universal shareholders 10c in cash and 0.6062 of each of its own shares for every Universal share held.

The offer valued Universal shares at 33.5c apiece, and represented a premium of 42.6% to Universal’s last closing price.

Universal has established a bid committee to consider the proposed terms of the offer, but told shareholders that the proposal was both inadequate and incomplete, as TerraCom stated that the offer would only be made at some point, and gave an “approximate” consideration, which Universal said suggested ambiguous conditions and a vague timetable.

Universal also said that the implied offer price did not represent an “appropriate control premium” to Universal Coal’s shareholders, with the implied premium being materially below recent precedent ASX transaction premiums in the metals and mining sector, while also representing a discount to the price paid by TerraCom for its initial 19.99% interest in Universal obtained in November of last year.

Valuation Metrics Universal told shareholders that the bid committee was concerned that the implied offer price could significantly undervalue the company, based on a range of valuation metrics, and did not take into account the company’s near-term growth profile.

Further, the proposed offer also materially increased the risk profile for Universal shareholders, as about two-thirds of the offer consideration would be provided in a highly leveraged company with uncertain prospects.

Benefit to Shareholders

“The directors of Universal who are not connected to the potential offer will, of course, consider carefully any bona fide change-of- control offer for the company that is for the benefit of all shareholders as a whole,” said Universal’s interim chairperson, Mark Eames.

“Further, if that is the case and the offer is fair and reasonable to the minority shareholders of Universal, then such an offer may very well also obtain the support of the board in the absence of a superior proposal.

“We have retained independent experts to value the business and we recommend that no shareholders take any action that would preclude Universal shareholders as a whole from making an informed decision, or allow insufficient time for a competing proposal to materialise,” he added.