Investor caution over Tinkler’s Whitehaven bid

Nathan Tinkler’s A$5.25bn ($5.35bn) buyout proposal for Whitehaven Coal has received a cautious response from investors with shares in the mining company trading at a large discount to the proposed offer price.

A consortium led by Mr Tinkler – an electrician-turned-mining entrepreneur – late on Friday announced a A$5.20-a-share bid to take the coal company private through a complex proposal that analysts said was akin to a leveraged share buyback.

Although shares in Whitehaven, one of Australia’s last remaining coal producers, rose 18 per cent to A$4.07 on Monday, they closed 21 per cent below the price put forward by the 36-year-old billionaire and his backers.

The Tinkler consortium has yet to secure debt financing for the indicative offer that requires almost half of Whitehaven’s shareholders to agree to roll their holdings into a highly-leveraged buyout vehicle.

Hedge funds said the consortium was essentially “buying time” to secure additional support for its offer and that it had not really progressed since Mr Tinkler made his initial offer for the company in June.

Whitehaven’s independent directors have given Mr Tinkler four weeks to conduct due diligence and “develop” its proposal.

The consortium says 48.3 per cent of Whitehaven investors have “expressed an interest” in rolling their shares into the new vehicle. It said it would allow a further 16.7 per cent of investors to do the same thing.

In addition to Mr Tinkler, who owns just over a fifth of the company, the shareholders are thought to include First Reserve, the US private equity group, Farallon Capital Management, US coal group AMCI Capital and its founder Hans Mende, according to traders.

“It is a very good sign that these shareholders think Whitehaven is undervalued at A$5.20, and that a buyback can add value,” said Derek Francis at Moelis & Co, the investment bank.

The consortium also has conditional backing from lenders UBS, JPMorgan and Barclays to provide financing.

People familiar with the situation said the consortium was confident of finding almost $A900m of “additional equity financing” if the additional 16.7 per cent of shareholders decided not to take the option of rolling their existing shares into the new private company.

Analysts said the offer, pitched at a 50 per cent premium to Friday’s closing share price, had clear risks.

“We infer the level of debt to be raised is in the order of A$1.9bn and up to A$900m of equity may be required,” said Andrew Sullivan, analyst at Macquarie Securities. “The letters of support do not represent firm commitments for debt funding with further due diligence required.”

Whitehaven’s assets in New South Wales include Maules Creek, a large undeveloped coal deposit the company claims is capable of producing almost 11m tonnes of coal a year by 2016.

However, Whitehaven warned investors on Monday that approval for the project was taking much longer than expected and that it did not expect to start producing coal until the first quarter of 2014.

“It is extremely difficult to predict the timing of approvals under the current dysfunctional interim New South Wales planning process,” said Whitehaven.

The company also said the cost of the project had risen to A$766m, an increase of 6 per cent over previous estimates. It also lowered full-year production guidance from its other mines. Australian thermal coal prices have dropped around 20 per cent this year to $90 a tonne.

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