ENRC & scheme of arrangement structure sets up a knockout bid level
Both this weekend’s Telegraph and the Sunday Times are reporting that the 3 oligarch majority shareholders of ENRC, together with Govt of Kazakhstan and being led by Alexander Machkevitch, will ask the Takeover Panel for an extension to the bid deadline that looms for this coming Friday. Interestingly, the Telegraph is reporting that the bid will be by way of what is called a “scheme of arrangement”.
For those of you who do not know what a scheme of arrangement is, it is described as following –
This feature has important repercussions for the utility of the scheme as a method of takeover. In particular, a scheme must be approved by those holding 75 per cent of the voting rights in the company, and thus its success depends largely on the cooperation of the target company’s board and its shareholders, making it an unrealistic vehicle for a hostile bid.
A majority in number, representing 75 per cent in value of the members or class of members (as the case may be), present and voting either in person or by proxy at the shareholders’ meeting, must approve the scheme. Unlike an offer, those shares already owned by the bidder are not part of the class which is eligible to approve the scheme.
If this is the case then it seems that the oligarchs must have sounded out Kazakhmys as to the acceptable level for a bid and, as has been relayed here on numerous occasions, given that KAZ paid upto 1000p per share (that’s right, 1000p) as shown in the chart below, and that the last major tranches of purchases were made at a little north of 400p, then together with the fact that they believed only 3 months ago that the shares should not be written down below 375p, we would be surprised to see them accept less than this figure. Taking this into account together with the scheme of arrangement issue in which the bidders will need KAZ’s stake to be successful, and the fact that the consortia are asking for an extension and you will begin to see why we expect a bid to be consummated towards the 375p level.
One other factor which we find encouraging for KAZ, is that in the event of a bid at 375p for ENRC, and which will result in almost two thirds of KAZ’s market cap then being in cash, that the market seems to have forgotten this RNS of 7 Feb –
Kazakhmys PLC (the “Group” or “Kazakhmys”) notes media speculation relating to the Group’s 50% holding in Ekibastuz GRES-1, the largest power station in Kazakhstan.
Kazakhmys has entered into discussions regarding the holding, but these are at an early stage and may or may not lead to a transaction.
A further announcement will be made, if appropriate, in due course.
Analysts have estimated upto £1.5bn being ascribed to KAZ’s share of Ekibastuz. With over 3 months now elapsed since this announcement, news is due shortly and, should this sale conclude around the mooted value aswell as ENRC’s takeover go through, and we are looking at 600p+ stock price on basic mathematics.
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