Noble launches Gloucester takeover

FOLLOWING a record half-yearly profit, Gloucester Coal’s $A900-million merger proposal with Whitehaven Coal is in jeopardy as commodities trader Noble Group makes an off-market cash takeover offer to Gloucester shareholders at the premium of $4.85 per share.

Blair Price

The offer ends speculation over what Noble, a 21.7% shareholder of Gloucester, would do after the trader labelled the merger proposal a “reverse takeover” that would give Whitehaven dominant control.

Aiming to entice fellow Gloucester investors, Noble said its offer was at a 54.2% premium to the closing share price of Gloucester on February 19, the day before Whitehaven’s merger announcement, a 32.9% premium to the ex-dividend share price of $3.65 implied in the merger proposal.

As part of its strategy, Noble aims to get the Takeovers Panel to insert terms into the Whitehaven merger proposal.

These will allow Gloucester directors to scuttle the merger proposal due to the receipt of Noble’s superior offer or enable Gloucester shareholders to vote on whether the merger proposal should proceed now Noble’s premium offer is on the table.

Detailing reasons against the merger, Noble said Whitehaven’s shareholders would end up controlling 67% of the merged entity with four current Whitehaven directors controlling more than 50% of the merged entity.

Noble added that Whitehaven’s chairman would become chairman of the merged entity, and Whitehaven directors could control the appointment and removal of directors of the merged company, and will outnumber Gloucester’s current directors 7 to 5.

Noble stated that Gloucester shareholders have the choice of accepting its offer or accepting a change of control.

As a Hong Kong-based company, Noble said it had received advice from the Foreign Investment Review Board that there would be no objections to its plans to acquire 100% of Gloucester in terms of Australia’s foreign investment policy.

With the takeover, Nobel said it has the funds available, and intends to pay accepting Gloucester shareholders within five working days.

“The Whitehaven merger proposal undervalues Gloucester and attempts to block any opportunity for a competing offer that would provide a higher premium to Gloucester shareholders,” Nobel Energy director William Randall said.

The takeover bid is subject to the Whitehaven merger proposal not going ahead and other proscribed occurrences.

Meanwhile, Gloucester has been rewarded for ramping up thermal coal production as it notched a record net profit after tax of $A44 million in the last six months of 2008, dwarfing the $5.2 million NPAT of the previous half.

Thermal coal sales increased 23% to 659,000 tonnes in the period compared to the last six months of 2007, while coking coal sales sank 28% to 262,000 tonnes.

“Our flexible production has allowed us to adapt to the decreasing demand for coking coal by boosting our production of thermal coal,” Gloucester chief executive officer Rob Lord said.

However, total coal production was down 6% to 880,000t for the six-month period compared to the last half of 2007.

Earnings before interest, tax, depreciation, and amortisation was $A63.1 million in the last six months of 2008, far eclipsing the $A11.2 million EBITA achieved in the 2007 corresponding period.

In good news for investors, Gloucester as hiked its earnings per share to 53.6 cents in half-yearly results, well above the 6.4 cents delivered the year before.

Gloucester has consequently declared an interim fully franked dividend of 13.5c with March 11 as the record date with payment on March 31.

In the last six months of 2008, Gloucester said it reduced debt to nil while the cash position of $25 million at the end of last year has now been increased to $50.7 million.

Gloucester will keep to its thermal coal focus as Lord said the company is fully sold for this year with contract prices in the second half in excess of $130/t.

“In addition, our renegotiation of coking coal contracts is currently underway and we are actively looking at new markets such as India, China and Korea to maximise price and volume outcomes,” Lord said.

Gloucester added that the higher prices should also offset the impact of higher cash costs, which aided by higher royalties have risen by $14/t to $69/t.

Back in 2007, Noble and private mining group AMCI used their stakes to vote down a takeover offer by Xstrata Coal, despite the wishes of Gloucester’s board.

The Takeovers Panel was established under the Australian Securities and Investments Commission Act.

Update: Gloucester stocks surged 28% to $5.00 this morning before easing to $4.96.