19-Dec-2023: Azure-Enters-Joint-Bid-TID-with-SQM-and-Hancock(Gina-Rinehart).PDF
Unexpected! Gina and SQM have today launched a bid for lithium company Azure Minerals (AZS) for $3.70/share in cash, and it looks like it's going to go through even with MinRes' (Chris Ellison's) blocking stake of 13.6%.
The MoM (Money of Mine) podcast lads are officially on holidays now, yet they managed to send out the following email to all of their "Hooteroo Herald" subscribers this arvo (and I'm one of those). They call out here that the structure of this deal provides a playbook for how to achieve a change of control transaction when you're dealing with one of those pesky 10%+ "blocking stakes". I don't hold AZS shares, but I do hold MIN (MinRes) shares, and I did find this very interesting.
Gina Joins SQM in AZS Bid without MinRes
There's a twist in the most interesting deal of 2023 so here's our quick thoughts on what it means for Azure holders, Gina, Chris, SQM, Liontown, Albemarle, etc...
If you've been living under a rock today, Gina and SQM have jointly put forward a recommended bid for AZS at $3.70/share. And yes, we are technically on break until Jan 15th but we are deal junkies so here you are ????
Key takeaways
- The new bid appears to us to be explicitly designed to carve out Ellison's MinRes and prevent him from troublemaking the deal on the table now
- We predict the deal to become effective in its current form despite retained blocking stake of MinRes
- Dual-transaction structure now provides a clear playbook to achieve a change-of-control amid heightened deal-blocking environment (eyes on LTR now)
Gina & SQM - What about MinRes?
It is extremely interesting that the recut deal still utilises the 'dual transaction' structure despite Gina (the LTR deal-blocker) being a member of the bidding consortium now.
To us, this appears intentionally designed to prevent Chris Ellison's MinRes from having the ability to become a troublemaker in Gina's new plans. To spell it out further, check out this condition of the scheme (noting MinRes sit at 13.56% currently).
This throws into question the degree of "cooperation" between Ellison and Rinehart. Some market participants (including us) had previously thought the two billionaires were relatively aligned in their WA Lithium ambitions. I guess it's RIP #ChrisGina. It will be fascinating to learn what Ellison's "plan" he can't reveal yet turns out to be.
MinRes likely bought shares up to $4/sh. Given this, any consortium including MinRes would be prohibited from lobbing a bid lower than $4 within a 4 month period of those shares being purchased.
The Game Theory on Ellison & MinRes' Next Move?
Given the combined 38% SQM / Hancock stake can not vote in the scheme, Ellison's 13.56% is effectively ~22% of the voteable base. Schemes have a 75% vote hurdle - factoring in expected voting turnout, Ellison's current stake could block the scheme from being implemented. With the nifty dual-transaction structure, that triggers the takeover offer at a marginally lower $3.65/sh.
Should Ellison choose to block the scheme, his options are to:
- hold out as a minority shareholder in an entity controlled by Hancock/SQM ;
- eventually fold-in as a minority to Hancock/SQM bid (with potential deal value uplift); or
- Bid himself outright at a higher price
Lets first look at the possibility of Scenario #1. Gina/SQM could seek to delist AZS from ASX. Ellison would have no Board representation and hence no control. We think this would not be palatable.
Lets also put a line through Scenario #3 since a) MinRes is already facing analyst heat for balance sheet health and b) Gina/SQM have a matching right.
Scenario #2 is possible but there isn't a tremendous amount of upside for Chris here. He may get some slight uplift but he risks antagonising Gina in the process (lets agree that he still needs her more than she needs him).
This leaves us predicting that Ellison ultimately accepts the current scheme offer from Gina/SQM rather than agitating. MinRes' average buying price is reported to be $3.66/sh. We think taking the $3.70/sh on the table is an acceptable outcome to a billionaire. "I made a profit!"
Hence we predict the deal gets done in its current structure. We encourage the Money Miners to review the 2014 Aquilla Resources takeover as further support of our prediction here.
Other than owning the equity of the mining project, Ellison can extract value from WA's hard rock lithium projects in two ways:
- Mining services contract; and
- Offtake / marketing rights
Lets watch-this-space for any MinRes involvement in either of the above as time unfolds.
Winners and Losers
Creasy
The experienced mining figure withheld from providing support in the first incarnation of the SQM deal to come to shareholders. As a result, he's edged out a higher price and his 12.84% ownership of AZS will bring in ~$220 million before tax. Lets still remember that he will still own 40% of Andover too. Winner.
Delphi Group
Provided voting intention to support the prior bid and have recommitted here. Their 10.15% of AZS will convert to ~$ 170 million before tax. That should offset some of the howlers the group have made in recent years - perhaps there is method to the madness after all! Winner.
The Bankers and Lawyers
We think creative deal structuring has been a key catalyst to "force" a 100% change-of-control outcome. Without it, we suspect Gina may have blocked SQM's bid but not acquired the company 100% until equity valuations were more depressed. Winners.
Liontown
LTR is up 11.2% today. The dual-transaction structure now serves as a playbook for a strategic to get a change-of-control outcome (provided they are happy to partner with Gina). Is Albemarle still interested? Pilbara? Wesfarmers? Lets watch if anything eventuates here. Winner.
Andover
We view Gina's long-term equity interest in Andover as a big plus for maximising the probability and timeliness of Andover's development. Gina has both a warchest of money and a track-record of seeking political influence. That should come in handy. Winner.
Gina and SQM
We don't believe it to be appropriate to evaluate this yet. Time will tell if the price paid was appropriate or not. A lot depends on the long-term lithium market dynamics. We don't have a crystal ball. TBA.
Ellison / MinRes
Implications of this announcement suggest an undesirable outcome for Ellison unless he can leverage his minority interest into a mining services contract or offtake agreement. Further shadows cast on "the plan to be revealed" as foreshadowed by Ellison. Loser... for now.
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Source: email this arvo from Money of Mine