As merger and acquisition activity begins to heat up, Mineral Resources (ASX: MIN) has made a takeover play for Atlas Iron (ASX: AGO), which values Atlas at a 59% premium to its closing price on 4 April.
The parties announced this morning that they had executed a binding scheme implementation deed, where Mineral Resources will acquire 100% of Atlas’ issued capital.
Both Mineral Resources and Atlas boards have recommended the takeover which values Atlas at A$0.0302 per share.
The offer is a 59% premium to Atlas’ A$0.019 closing price on 4 April, and 28% higher than the company’s 30-day volume weighted average price of A$0.0236.
Under the agreement, Atlas shareholders will receive 1 Mineral Resources share for every 571 Atlas shares held.
Mineral Resources shareholders will own 91.8% of the combined entity with Atlas shareholders retaining about 8.2%.
“The proposed business combination with Mineral Resources provides Atlas shareholders with the opportunity to gain exposure to a diversified commodities and services business, with a strong balance sheet and multiple revenue streams,” Atlas chairman Eugen Davis said.
Mr Davis noted Mineral Resources’ operating expertise and revenue stream would enable a number of opportunities within Atlas’ portfolio to be unlocked.
As a primarily iron ore play, Atlas has been exposed to the ongoing volatility in the iron ore market, with continuing low prices and low-grade material leading to the company posting a statutory after tax net loss for the half year ending December 2017 of A$21 million.
In an attempt to mitigate the impact of low grades and prices, Atlas secured an agreement with Pilbara Minerals (ASX: PLS) in early March to purchase lithium direct shipping ore, crush the ore at its own Mt Dove plant and ship it to Sinosteel for the next 15-months.
Atlas anticipating generating about A$20 per tonne of lithium after payments to Pilbara Minerals and its own costs.
Less than two weeks later, Atlas added manganese to its shipping mix after clinching an agreement with private company Horseshoe Manganese.
Via this agreement, Atlas will take charge of up to 100,000 tonnes of manganese lump from Horseshoe’s Murchison mine site.
Merger benefits to both companies
Mr Davis said Mineral Resources’ takeover would give the combined company multiple revenue streams enabling it to fare better during various commodity price cycles.
Atlas managing director Cliff Lawrenson added the merger will also provide scale and financial security to Atlas’ operations, as well as access to funds for further development.
Mineral Resources managing director Chris Ellison said securing Atlas’ assets was part of the company’s strategy to consolidate its iron ore business and ensure its 50 million tonne per annum Pilbara infrastructure was fully utilised to drive efficiencies and cut operating costs.
The deal remains subject to shareholder and other regulatory approvals.
Atlas shareholders will be given the opportunity to vote on the takeover in July, with the transaction anticipated to be completed in August.
Atlas investors reacted positively to the news, with Atlas’ share price rocketing more than 42% by mid-afternoon to reach A$0.027.