Aquila in talks with white knight to thwart Baosteel

MELBOURNE Sun Jun 15, 2014 10:39pm EDT

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MELBOURNE (Reuters) - Aquila Resources Ltd AQA.AX and its new strategic stakeholder Mineral Resources Ltd (MIN.AX) plan to announce a deal, both companies said on Monday, which could thwart Chinese steel giant Baosteel Resources' $1 billion bid for Aquila.

Aquila and Mineral Resources both sought trading halts on their shares, saying they aim to make an announcement on a transaction by Wednesday. Spokesmen for Aquila and Mineral Resources declined to comment on the nature of the deal.

At stake is the $7 billion West Pilbara Iron Ore mine, rail and port project, which has been on ice for nearly two years, as Aquila has not been able to fund its 50 percent portion of the massive project.

Mineral Resources last week bought a 13 percent stake in Aquila in the hope of securing a deal with Baosteel to sell its stake in return for a construction contract on the project.

It bought its stake for A$197 million, or A$3.75 a share, which is a 10 percent premium to what Baosteel has offered for Aquila. That raised hopes that Baosteel and Aurizon may raise their bid to win Mineral Resources' support.

However Baosteel and Aurizon last Friday made clear they would not raise their A$3.40 a share offer, valuing Aquila at A$1.42 billion ($1.33 billion), as it was pitched at a hefty 39 percent premium to Aquila's share price when announced in May.

And Baosteel said it saw no role for itself in the West Pilbara project if its takeover did not go ahead, and might sell its stake in Aquila. That knocked Aquila's shares down 12 percent on Friday to A$3.10, well below the offer price, indicating investors now see Baosteel's bid failing. The stock last traded at A$3.13.

The bid needs 50 percent acceptance from Aquila's share base, a tough hurdle given that executive chairman Tony Poli, who has so far given no recommendation on the bid, and Aquila co-founder Charles Bass together own 40 percent of the company.

Combined with Mineral Resources' 13 percent stake, the takeover condition will be insurmountable.

Baosteel cannot talk to Mineral Resources about building the West Pilbara project because under the agreement with Aurizon, outlined in the bidder's statement for Aquila, the Chinese steel giant has agreed to talk only to Aurizon about infrastructure plans for the project.

"We have held no talks with Mineral Resources," Baosteel Resources' spokesman in Sydney, Greg Baxter, said on Monday.

Aquila's and Mineral Resources' advisers at Goldman Sachs and Azure Capital respectively were not immediately available to comment.

($1 = 1.0639 Australian Dollars)

(Reporting by Sonali Paul; Editing by Stephen Coates)

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