ENRC $4.7 billion buyout bid gets support from Kazakhmys

LONDON Mon Jun 24, 2013 10:24am BST

A woman walks past the logo of mining group Kazakhmys, at the company's office in Almaty May 15, 2013. REUTERS/Shamil Zhumatov

A woman walks past the logo of mining group Kazakhmys, at the company's office in Almaty May 15, 2013.

Credit: Reuters/Shamil Zhumatov

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LONDON (Reuters) - A $4.7 billion (3 billion pounds) bid by the founders of ENRC ENRC.L to buy out the Kazakh miner has gained the support of top shareholder Kazakhmys (KAZ.L), paving the way for them to take the company private after almost six turbulent years.

ENRC's three founders, Alexander Machkevitch, Alijan Ibragimov and Patokh Chodiev, along with the Kazakh government are seeking to acquire the roughly 46 percent they do not already control, and on Monday they confirmed a bid in cash plus the government's shareholding in Kazakhmys. They had until 5 p.m. (1700 BST) to either make a firm offer or walk away.

Kazakhmys has long sought to resolve its troublesome 26 percent stake in ENRC, and its support is vital for the three billionaire founders, who want to draw a line under a London adventure marred by corruption probes, governance concerns and boardroom rows.

The bidders - renamed Eurasian Resources - said they would offer $2.65 in cash plus 0.230 Kazakhmys shares per ENRC share, or roughly 234.3 pence in total. It was unchanged in structure but lower in absolute terms compared with a proposal sketched in May, due to a sharp drop in Kazakhmys shares.

ENRC's London shares were down 0.2 percent at 216.4 pence at 1015 BST, indicating little hope of an improved or rival offer.

The bidders, who have twice extended a bid deadline as they have hammered out financing and other details, said on Sunday that Kazakhmys' support, even conditional, was an element without which there would be no final offer.

Two of Kazakhmys' largest shareholders, former chairman Vladimir Kim and Chief Executive Oleg Novachuk, have given their backing. But the deal will need to be supported by its minority investors, a twist that puts the fate of ENRC in the hands of Kazakhmys' smaller shareholders.

END OF THE AFFAIR

Kazakhmys said on Monday it had sought to increase the cash portion of the offer but that failed and it decided to support the offer anyway.

It was, it said, "the best alternative" given what it said was the "considerable" risk of that value would erode further without a bid.

"In the light of the significant issues currently facing ENRC, and the prospects for ENRC and the impact on its value if the offer does not proceed, the board of Kazakhmys believes that the offer represents the only realistic opportunity to realise value for the group's investment in ENRC," Kazakhmys Chairman Simon Heale said.

Seeking to woo its own shareholders, who will have to vote on the deal and will ultimately decide the fate of ENRC, Kazakhmys outlined reasons for supporting the offer, including $887 million in cash and 77 million shares that will boost its financial position at a time when it is developing mines.

It is expected to cancel the shares.

The offer also ends Kazakhmys' association with troubled ENRC, increases the number of shares freely available to trade and removes the Kazakh government as a shareholder.

Yet Kazakhmys shares were down 10.3 percent to 241.7 pence, around their lowest levels since mid-2008, as traders fretted over the loss of earnings previously received from ENRC and an increased exposure to gold and silver, at a time when precious metals prices are suffering.

Macquarie analyst Alon Olsha said the sale of ENRC would leave Kazakhmys looking expensive on an earnings multiples basis, though "that doesn't reflect the beneficial impact on the balance sheet".

He added, "It does now put the focus squarely on Kazakhmys' core."

ENRC's independent board members have not yet given their verdict on the offer.

(Editing by Keith Weir and Jane Baird)

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