AVB receives scrip and cash offer from OZL
AVB has received an off-market takeover offer for 100% of the shares in AVB. The offer is composed of a 50/50 cash and scrip offer that together values AVB at $418m, or 17 cents per share, and represents 16% of OZL’s market capitalisation. We have long believed that AVB held a suite of growth assets almost unparalleled in the ASX-listed copper space. OZL recognise this opportunity with an earnings accretive acquisition that also adds significantly to the organic growth potential of the expanded group.
- Half cash, half scrip: Should the acquisition be successful, AVB shareholders will receive $0.085 in cash and 0.009 OZL shares for every one remaining share in AVB. AVB shareholders will therefore own up to 7.3% of the expanded group. This represents a 121% premium to the share price on the day immediately before the offer ($0.077) and a 119% premium to the 1-month VWAP of $0.078. OZL has stated that, in the absence of a superior proposal, the bid will not be increased.
- Pre-bid indications represent 30.6% of AVB: Private equity group Appian Natural Resource Fund, with 18.45%, has entered a pre-bid acceptance deed. Black Rock Investment Management, representing 11.6%, and AVB directors and management, representing 0.57%, have also indicated their acceptance of the offer. Total shareholding under deed or indication to accept the offer is already at 30.6%. A minimum acceptance condition of 50.1% is required as a condition precedent.
- AVB provides a suite of growth assets to OZL: OZL has been looking for some time to diversify its portfolio to grow its assets beyond Carrapateena and Prominent Hill. OZL entered into an agreement to acquire the Nebo-Babel and Succoth assets from Cassini Resources (ASX:CZI). The AVB acquisition will grow their advanced growth asset portfolio from 3 projects to 7 whilst at the same time adding incremental copper production.
- Acquisition cost looks attractive to OZL in our view: We take the view that at 16% of OZL’s market capitalisation, the acquisition of AVB, with its string of development assets, looks very attractive and diversifies OZL’s asset base whilst maintaining its focus on copper and gold, after the deal with Cassini (nickel and platinum). Importantly, OZL has stated they intend to keep the AVB management team. We think this will be crucial to the success of the acquisition as AVB’s management has demonstrated their ability to successfully operate in Brazil. There has been a number of examples where ASX-listed companies have not made the most of the opportunities in Brazil and we, in part, put this down to management not embedding themselves in-country.
- Is the offer a good deal for AVB shareholders?: We believe so. Although the offer price of $0.17 is lower than our valuation, at $0.22, AVB shareholders are able to get the majority of the value gap up front, and importantly, without the execution and financing risk associated with the development of the next one or two projects. It also circumvents a less than ideal capital structure, which could have proved problemamatical in further financing arrangements.
- Recommendation: HOLD. Potential for a superior bid may materialise.
Disclosure and Disclaimer RCAN1472
This Research report expresses the personal view of the Author. The Author does not hold any securities in Avanco Resources Limited.
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SPECULATIVE BUY – Potential 10% or more outperformance, high risk
BUY – Potential 10% or more outperformance
HOLD – Potential 10% underperformance to 10% over performance
SELL – Potential 10% or more underperformance
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