Sinosteel gets 50 pct of Midwest Corp: sources

HONG KONG (Reuters) - Chinese state-owned trading firm Sinosteel has clinched its $1.3 billion takeover of Australian iron ore prospector Midwest Corp MIS.AX after receiving more than 50 percent acceptances, sources close to the transaction said on Thursday.

The sources said Sinosteel would announce its hard-fought victory in the battle for Midwest on Friday, having won over enough of Midwest's directors to accrue a majority stake.

The takeover marks a major step forward in China's efforts to establish a significant presence in Australian iron ore, with Sinosteel hoping to build up a new source of supply for China's hungry steel industry, the world's biggest.

Sinosteel saw off a rival suitor, Midwest's neighboring prospector Murchison Metals Ltd (MMX.AX), which is backed by Mitsubishi Corp (8058.T) of Japan, with a cash offer of A$6.38 per Midwest share.

The deal is China's biggest ever corporate takeover in Australia, according to Thomson Reuters data.

One source said Sinosteel would not extend its offer beyond the current closing date of July 18.

With Murchison and its main shareholder Harbinger Capital and Midwest director David Law all holding onto sizeable stakes in Midwest, Sinosteel is unlikely to reach the 90 percent needed to force out minority shareholders or even the 75 percent required to pass special resolutions on disposals and mergers.

PROJECTS

One source said although Sinosteel would continue to look for acquisitions in iron ore, the immediate priority would be delivering on existing projects.

But Sinosteel has previously applied to Australia's Foreign Investment Review Board for permission to take over Murchison as well as Midwest and many analysts say such a move would make perfect sense, with shared infrastructure and adjacent projects offering significant cost savings.

The two companies are backing rival consortia to build rail and port infrastructure in the midwest region of Western Australia, which they both want to turn into a major new production region for the commodity used in steel making.

The Western Australian government will announce the winning bid by the end of July, and possibly as early as next week, several sources said, which could tilt the balance of power towards the winning firm.

Midwest's board had taken the unusual step of recommending both Sinosteel's and Murchison's rival proposals. Murchison had attempted to lure Midwest shareholders with an all-stock merger offer structured as a tax-efficient reverse takeover.

But Murchison dropped its plan on Monday as Sinosteel passed the 45 percent mark. Its merger plan had initially valued Midwest at $A1.65 billion when it was pitched on May 26, but the offer wilted as Murchison's share price tumbled from more than A$4.66 to below A$3.0 this week.

Sinosteel had made a hostile bid but later raised it to win the board's recommendation. No Chinese firm has ever achieved a hostile overseas acquisition, according to Thomson Reuters data.

Sinosteel has already named three directors to the nine-strong Midwest board and could name more, depending on the outcome of discussions with incumbent directors.

Sinosteel was advised by JP Morgan on its bid, while Midwest was advised by Morgan Stanley. Midwest said earlier on Thursday that it would issue A$19.3 million ($18.4 million) in new shares to pay Morgan Stanley's fees.

(Editing by Jacqueline Wong and Sue Thomas)