Also key to the bid’s potential success will be whether it garnered support from Lonmin’s major shareholders, which seems to have turned mixed results thus far.
Lonmin’s biggest shareholder, M&G Management told Mining Weekly Online at the weekend that it was in it for the long haul.
“M&G is a long-term investor in Lonmin, and funds managed by M&G hold 17%,” the company said in response to emailed questions, without commenting further.
That sentence suggested that M&G, one of the UK’s biggest investment companies, did not find Xstrata’s £33 a share offer attractive, and would hold on to its stake.
At least two other significant shareholders, meanwhile, had already accepted Xstrata’s offer – BlackRock and Threadneedle – helping the Swiss firm to lift its stake in the world’s third-biggest platinum-miner to 10,68% by Wednesday.
The price that Xstrata was offering for Lonmin was a 42% premium over its closing price in London on Tuesday – when the platinum-miner was dwindling near its 12-month low. On announcement of the proposed preconditional bid, its stock shot up dramatically on the JSE, by 50%.
Its share price had taken multiple blows over the last two months, mainly owing to a big correction in the platinum price and problems at its smelters.
Analysts believed that Xstrata should have no problem pushing its proposed bid through.
One Johannesburg-based analyst, who did not want to be named, said that Lonmin’s management were not doing enough to try to convince shareholders that they would get better value from the company under the current ownership.
“Management’s efforts have been dismal in trying to fight back, if you can call it fighting back at all,” he said by telephone, drawing attention to the unimpressive production update and outlook that it published on the same day as Xstrata sprung its takeover proposal.
Another analyst, Vestact MD Paul Theron, said that he would be inclined to accept Xstrata’s offer.
“I think it's going to come down to what the platinum price does,” if it goes up, it puts pressure on Xstrata to go higher,” Theron said.
The other analyst said this might hold true, adding that “the platinum price isn’t going to jump up in a hurry”.
“That’s not to say that consumption is going down,” he stated. “I think that prices will recover.”
He agreed with Lonmin’s statement that Xstrata’s offer was opportunistic, but said that it was a “very fair price” if one took current spot prices into account.
Lonmin did not agree though. In a statement on Thursday, it called the bid “entirely unwelcome” and “wholly inadequate”.
“This is an opportunistic move by Xstrata which attempts to capitalise on the current volatility in [the] financial and metal markets. Lonmin will contest this approach vigorously. It undervalues Lonmin’s unique business and fails to deliver appropriate value for Lonmin’s shareholders,” chairperson Sir John Craven said in a statement.
“Shareholders are strongly advised to take no action in respect of the preconditional offer and to reject the approach.”
But Fairfax analysts John Meyer and Marc Elliott said shareholders might not agree.
“Xstrata's cash offer represents an opportunity for shareholders to regain lost value and move on into other better run and more lowly valued mining opportunities with better growth prospects. We expect rival platinum producers to do well from the reinvestment of cash from Xstrata as investors,” they said in a research note.