Australia's Consolidated Minerals backed a new A$752 million (US$660 million) bid from Pallinghurst Resources over a higher offer from Territory Resources, the latest salvo in a battle for control of one of the world's richest manganese deposits.
Consolidated said on Friday the A$3.30 a share cash bid offered greater certainty than Territory's around A$806 million cash and scrip bid, had no stringent funding terms and had a lower minimum acceptance threshold of 50.1%.
Consolidated's shares fell as much as 3.4%, but were still trading at A$3.40 late Friday, a significant premium to the offer, suggesting investors were betting on Territory returning to the table. "I wouldn't discount that given the egos involved," Fat prophets analyst Gavin Wendt said.
Territory Executive Chairman Michael Kiernan was ousted as head of Consolidated two years ago. He and Pallinghurst Chairman Brian Gilbertson, a former BHP Billiton chief executive, are two of Australia's best known mining deal makers.
Analysts said Pallinghurst's offer, approved by Consolidated unless there is a better offer, gave shareholders an all-cash alternative to the uncertainty of Territory's offer.
"The valuation of Territory is pretty difficult, according to our valuations the bids are pretty much on par, except one's in cash," Paterson Securities analyst Alex Passmore said.
Territory shares rose 10% to A$1.13.
Consolidated supplies about 10% of the world's high-grade seaborne manganese ore, a commodity whose price is surging because of its use as a toughening alloy in steel making.
Gilbertson told reporters his vision was to form a partnership between Pallinghurst and the existing Consolidated shareholders.
"The offer is being made for 100 percent of the shares of the company, but we will target 60 percent and we hope that will be what the shareholders accept as they stay with us for the ride," Gilbertson said.
He said Pallinghurst would retain the existing board, appointing an additional three directors.
Consolidated directors have agreed to accept the Pallinghurst offer selling 60% of their shares. This would enable the company to retain its sharemarket listings in Australia and London.
Territory this week offered A$2 cash and one-and-a-half of its shares for each Consolidated share, topping an earlier Pallinghurst bid and valuing Consolidated's ordinary shares on issue at about A$806 million at Territory's latest close of A$1.025 a share.
However, Consolidated noted Territory planned to borrow about A$420 million in a "complex, highly geared funding structure with unknown conditions". By contrast, Pallinghurst's bid brought no new debt into the group.
Consolidated's board has previously expressed concerns over the long-term value of Territory shares, which traded as low as A$0.35 early this year. Territory has a market capitalization of just A$160 million, less than a quarter of Consolidated's.
Kiernan ran Consolidated for eight years before being fired after he failed to anticipate a sharp drop in manganese prices that cost the company millions of dollars in revenue. He has said he doesn't believe shareholders will hold that against him if he retakes Consolidated. Pallinghurst's cash offer opened at the end of July and will close at the end of August.