Sinosteel ups stake to 28 pct in bid target Midwest

June 4, 2008

June 4th (Reuters) – Chinese metals trader Sinosteel said on Wednesday it has raised its stake in Midwest Corp (MIS.AX: Quote, Profile, Research) to 28.37 percent from 19.89 percent as it seeks to take over the Australian iron ore prospector.

Sinosteel has offered A$6.38 a share for Midwest, which is also the subject of a merger proposal from neighbouring iron ore miner in Western Australia, Murchison Metals Ltd (MMX.AX: Quote, Profile, Research).

 

Murchison has designed its proposal so it does not conflict directly with Sinosteel’s bid, although both firms are competing to win control of Midwest, and Midwest’s board has recommended both deals.

 

Sinosteel managed to increase its holding even though Midwest’s shares are above Sinosteel’s offer price, trading at A$6.76 by 0134 GMT on Wednesday.

 

The stock has retreated from a high of A$7.10 on May 30 and Sinosteel has said it is confident that its cash bid will eventually trump Murchison’s all-stock merger plan.

 

In a war of words between the two rival suitors, Sinosteel dismissed the merger offer as unlikely to succeed and listed the perceived shortcomings, which Murchison rejected point by point.

 

Murchison’s shares have slipped back to A$4.09, implying its merger proposal is now worth around A$7.12 per Midwest share. It is backed by Japan’s Mitsubishi Corp (8058.T: Quote, Profile, Research) and U.S. hedge fund Harbinger Capital, Murchison’s top shareholder, which has built up a stake of 8.1 percent in Midwest.

 

Sinosteel’s A$6.38-a-share offer was originally conditional on getting at least 50 percent acceptance but last week it scrapped the condition, improving the bid’s attractiveness. It has said it will not raise its bid above A$6.38.

 

Analysts say the idea of a tie-up between Midwest and Murchison makes perfect sense because of their shared infrastructure and adjacent projects, and even if Sinosteel’s bid succeeds the Chinese company is likely to want Murchison as well.

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