What’s the story unwinding for Atlas Iron Limited (ASX: AGO) – Is it still a stock tip?

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Australian Economy, Macro Economics

What we have seen is a tremendous tethering in relation to the bidding war for Atlas Iron limited (ASX: AGO). The group was first approached by Mineral Resources Limited (MRL) for a takeover and then emerged another group, Gina Rinehart’s Hancock mining services group, eying over AGO with a higher offer. With the recent development that entails a period of three days being given by Atlas Iron to Mineral Resources to match a buyout offer by Hancock, is something that has kept the shareholders on a hot seat.

Atlas operates in Pilbara region of Western Australia which has iron ore rich zones and underdeveloped tenements. The group has been at the cusp of taking a decision given the bidding battle that got ignited by the proposal from Gina Rinehart’s Hancock mining services group. The offer made by Hancock to Atlas entails a price of 4.2 cents per share leading to $390 million cash bid and this is quite higher than Mineral Resources’ offer of $280 million. Hancock has also built up 19.96 percent of interest in Atlas which is large enough to block the offer from Mineral Resources which was earlier supported by Fortescue. The latter itself lifted its stake in AGO to block MRL as in seen a couple of weeks ago. Shares of Atlas jumped to 4.4 cents, 22 percent early this week, slightly above the Hancock bid value. Primarily, Redstone Corporation Pty Ltd (Redstone), a wholly owned subsidiary of Hancock Prospecting Pty Ltd (Hancock) has announced an all cash offer of the ordinary shares in Atlas Iron Limited (Atlas) at the price of $0.042 per share. This offer price is at a premium of 41% compared to MRL offer price. The all-cash offer seems to provide Atlas shareholders certainty with regards to value of consideration.

On the other hand, Mineral Resources Limited (MRL) announced a proposed transaction whereby Atlas was to complete a scheme of arrangement which would see Atlas shareholders receive one MRL share for every 571 shares they held (MRL proposal). The MRL proposed value for an Atlas share was at $0.0302.

There have been few major reasons highlighted on why Atlas can accept the Hancock offer in case Mineral Resources does not come up with a superior offer:

  1. The high premium for Atlas shareholders
  2. 100% cash offer to be paid promptly
  3. No ‘prescribed occurrences’ – condition
  4. High level of certainty along with certain value to Atlas shares
  5. If not accepted the stock price may fall

To accept the offer, Atlas must follow the instructions set out in the Bidder’s statement. Hancock bid is not subject to a minimum acceptance condition like Mineral Resources Limited offer and leaves Fortescue with few decisions to make. With the deal in pipeline and the current market price at $0.044 which is near a record 52 week high of $0.046, we believe that it is worth watching the developments before recommending investors about Atlas to be a good stock tip amidst the environment driven by acquisition pent-up.


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