The battle for Christmas Island phosphate miner Phosphate Resources Limited has escalated with PRL and takeover suitor Asset Backed Holdings trading shots over the share value of the offer.
Asset Backed’s takeover bid for public unlisted company PRL, launched on July 21, is now due to close on October 29.
PRL, in its recently released target statement, has called Asset Backed’s $3-a-share takeover offer too low, pointing to an independent experts’ report from Ernst & Young suggesting a price of $4.20 to $4.71 to be more appropriate.
It also pointed out that the bid lacked a premium for control, a fairly common part of other takeover offers, and whether Asset Backed would have enough cash to add value to PRL if it acquires the 90 per cent stake it seeks.
Ernst & Young estimates that Asset Backed will only have about $200,000 left over.
Asset Backed, in a letter to shareholders, has hit back at the PRL target statement, pointing out that the phosphate miner’s before-tax loss for 2003-04 was $2.4 million, that it had not paid shareholders a dividend for the past two years, and that the miner had total liabilities of more than $21 million.
However, there are suggestions that the tough times are starting to end for PRL.
It has an annual operating revenue of about $50 million and recent cost pressures such as its accelerated mining program are ceasing.
The high value of the Australian dollar, which caused the company some grief, is also less of an issue, and while high oil prices and shipping costs are a concern, they are having a greater effect on PRL’s main competitors from the Middle East and North Africa, according to Ernst & Young.
PRL also received a $3.2 million payout from the Federal Government as compensation for land the Government resumed for the Christmas Island immigration detention centre.
The Asset Backed letter also mentions that Ernst & Young Transaction Advisory Services had been retained to undertake an independent valuation of PRL on April 30 and put its value at between $2.74 and $3.18 a share. It also points out that PRL directors were paid $997,530 in 2002-03 and that directors’ fees had not been reported for 2003-04.
Asset Backed’s bid was sparked by a claim from the Union of Christmas Island Workers for about 20 per cent of PRL’s shares to be placed into a community trust to be controlled by the union, the Christmas Island Shire and two independent professionals from the Australian mainland, in return for wages, conditions, employment level and productivity trade offs.
UCIW secretary Gordon Thompson is also Christmas Island’s shire president.
The recent Asset Backed bid is arguably its second one.
In 2002 Asset Backed’s then chairman Michael Perrott was made chairman of PRL. Two other Asset Backed directors, David Argyle and Anthony Rigoll, were also on the miner’s board.
Mr Argyle had come onto Asset Backed’s board after he sold 700,000 PRL shares he had been given in the late 1990s to Asset Backed.
PRL announced a $4.7 million share buyback that Asset Backed declined to take part in. Its stake rose to about 27 per cent.
Six months after that buyback PRL announced it would conduct a $4.7 million rights issue that Asset Backed would partially underwrite.
The takeovers panel became involved and stopped that rights issue in early 2003. Had it and Asset Backed’s underwriting gone ahead, it would have ended up with a nearly 40 per cent stake in PRL.
Since then, Asset Backed’s stake in PRL has risen, under the 3 per cent bracket creep provision in corporations law, to about 35 per cent.
PRL was formed in 1989 to reopen the phosphate mines on the island after the Hawke Government closed them in 1987.
The phosphate miners and Christmas Island residents became the company’s main shareholders.
These days only 29.8 per cent of the PRL shares on issue are held by mine workers and their families.
Nearly 60 per cent of PRL’s shares are said to be owned by non-Christmas Island residents.
