Lonmin deal cleared, but snags remain


Sibanye-Stillwater may have won at the Competition Appeal Court, which ruled in favour of its plan to take over Lonmin, but problems with the deal appear far from over.
The merger is poised to make Sibanye the largest platinum group metals (PGMs) producer in the world.
On Friday the court ruling dashed the Association of Mineworkers and Construction Union's (Amcu's) bid to stop the merger. The ruling follows Amcu's appeal against the Competition Tribunal's decision to approve the merger.
But even with the court's approval, the market is divided over the merger.
Bloomberg reported on Friday that the Public Investment Corporation (PIC), whose 30% stake in Lonmin is enough to block the planned takeover, is concerned that the value of the all-share deal has been eroded, according to a PIC insider. It is concerned about the drop in Sibanye's stock since the deal was announced in December 2017.
The PIC has held talks with Sibanye and will make a decision on Monday on whether to back the takeover. The deal requires the backing of 75% of Lonmin's shareholders when they vote later this month.
In a note, Hurbey Geldenhuys, head of equities at Vunani Securities, said it supported the transaction but not at the current share ratios.
When the deal was announced, Lonmin was valued at about £285m (about R5.2bn). However, last month Sibanye and Lonmin announced that the share exchange ratio had increased by 3.4%, with Lonmin recommending the new offer.
"If the transaction is voted in at current market values, the offer for Lonmin falls to a mere 62% of the original value, to £176m. This is simply not right," said Geldenhuys. "We ask, why is Lonmin worth less now than in December 2017, when the PGM operating environment has dramatically improved?"
He said there was no argument to explain the 40% drop in Lonmin's value and urged shareholders to vote against the proposed transaction when they meet to make the final decision on it later this month.
Geldenhuys said the revised offer did not reflect the changes in both Sibanye and Lonmin's operating environments.
"We believe the revised offer should, at the very least, be pitched at the original offer of £285m, but we believe a threefold increase is defendable," he said.
There were other options open to Lonmin as a standalone business, said Geldenhuys. These included Lonmin selling its assets in order to strengthen its balance sheet or sourcing funding from capital markets, such as Northam, Royal Bafokeng Platinum and Sibanye had recently done.
But Rob Pietropaolo, a trader at Unum Capital, said Sibanye might be overpaying for Lonmin. "Sibanye might have [offered] a little bit too much, but obviously gold mines and platinum mines are valued by what's under the ground, not what's on top of it."
He said the merger would help cash-strapped Lonmin become productive again.
"Either way, Lonmin would've needed help with their cash flow. Lonmin was very close to doing yet another rights issue, and how many can you do before your shares are worthless?"

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