ENRC – Conflicting news stories out this weekend

Suleiman Kerimov

Well, the final countdown begins for a near certain re-tabling of a takeover offer by the 3 oligarchs looking to steal (sorry, take private) ENRC and so end the hapless saga that has been the company’s listing experience…

This weekend there were conflicting stories out from both the Telegraph and Sunday Times, with the latter intimating that KAZ management had all but nodded through the low ball bid, whilst the Telegraph spun a different story of KAZ , in fact looking to push for better terms whilst the ENRC independent Board carry out an asset valuation exercise with the intention of pushing the bidders for a “material” increase in the currentsuggested level which equates to only around 250p at the present KAZ share price. Stories of valuations approaching 400p have been doing the rounds. In our opinion, that is still a steal with tangible book value in excess of 600p per share at ENRC.

It is, however, the involvement of Mr Suleiman Kerimov that has many sratching their heads. He took an initial 2.86 per cent stake in April, just after the company’s three founders announced their intention to take the group private, and later raised it to 3.06 per cent. Our guess is his average price is around 265-270p and so he is under water at the current price.

The FT reports that several Moscow bankers who have worked with him speculate he either bought the stake because he thinks he can be bought out at a profit, or because he is doing someone a large favour, or – even more likely – both.

They also report that Kerimov appears to have positioned himself as a shareholder activist in the deal, and is understood to have communicated in writing to UK regulators that his interests are aligned with minorities in seeking a higher buyout offer from ENRC. People familiar with the situation say he is pushing for an offer of 400p in cash, much higher than a lowball offer equivalent to 260p which was rejected by minority shareholders on May 17.

He is trying to use his leverage to get the Kazakhs to do an interesting deal for the minorities . . . He wants the deal to go as high as possible…– one banker was quoted as saying.

“…People have been playing the stock a little bit. He can lobby. He wants the deal to go as high as possible. He can try to put pressure on but he doesn’t hold any decision-making power. This lies with the Kazakhs. I don’t think there’s any agenda. I think he just wants a good deal.”

What we are unclear about at present at SBM, and it seems the press in general, is whether Kazakhmys will in fact be able to vote their stock as they are deemed to be a party connected with the takeover – not surprising given the Kazakhstan Govt’s holding in both corporations. THIS IS ABSOLUTELY CRUCIAL to the outcome however as, if the Scheme of Arrangement is still being used as the exit method, it is in fact the minorities who will have the commanding vote – the connected parties cannot vote and 75% of the eligible voting parties need to sanction the bid for it to succeeed. If KAZ are restricted from voting, and the independent directors state that the bid should be rejected, then contrary to some press quarters, this is not a fait au complit but rather it doesn’t have a cat in hell’s chance of succeeding on the current basis.

It seems that neither side wants this to drag on, and so expect a swift deal. “There’s a lot of interest in it going through. Both sides want all this to go away,” the banker was quoted.  

We remain long KAZ for all the reasons relayed on this board in recent months and would not rule out a move on them by Kerimov as the ultimate poision pill to block the ENRC takeover at a wrong price.