By Matt Chambers, The Australian
February 01, 2011 12:00AM
COAL junior Northern Energy is most likely to reject a raised $225 million cash bid from New Hope because it remains well below the value ascribed to the target in an independent expert's report.
New Hope has boosted its hostile bid from $1.50 a share to $1.75, which is still less than half the upper range of the diluted value of between $2.70 and $3.99 a share assigned to Northern Energy by independent expert Lonergan Edwards in a recent target's statement.
Northern Energy managing director Kevin Barker said his board had not met to discuss the bid or form a recommendation to shareholders, but his view on the matter was clear.
"It remains significantly below the valuation of the company," Mr Barker said.
Northern Energy shares jumped 7c yesterday to a 2 1/2-year high of $1.74, indicating investors do not expect a competing bidder to value Northern Energy anywhere near as highly as Lonergan had.
Mr Barker said the target was still in discussions with other potential suitors after opening a data room late last year.
New Hope chairman Robert Millner said his new offer, which was at an 84 per cent premium to where the stock traded before the first New Hope bid, was a fair one.
"We think it is a very fully priced bid," Mr Millner said. "There are no other competing bids."
New Hope's bid is conditional on it securing 50.1 per cent of Northern Energy, of which it already has a 4.97 per cent stake.
"There is a risk that the price of Northern Energy may fall to pre-takeover approach levels if the offer does not succeed," Mr Millner said. He said there were significant risks associated with holding Northern Energy shares, particularly in relation to the funding and development of Northern Energy's project pipeline.
New Hope, by contrast, has $2 billion of cash reserves it can use to fund development.
Brisbane-based Northern Energy is planning to start production at is Maryborough coking coal project in 2012 and the Elimatta thermal coalmine in 2014, depending on Queensland infrastructure capacity.
Mr Barker noted that a number of milestones in development of Northern Energy's projects had been announced since the New Hope bid.
Coal prices, and those of coal stocks, had also risen.
"Northern Energy would most likely have responded positively to the changes in the economic environment, regardless of New Hope's offer," the target said.(sourced:theaustralian.com.au)
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