* Kazakhmys says bid for ENRC buyout "best alternative"
* Founders confirm offer worth 234.3 pence per share
* ENRC independent directors say cannot recommend bid
* Kazakhmys down 8 pct, ENRC shares below bid level
By Clara Ferreira-Marques
LONDON, June 24 A $4.7 billion bid by the
founders of ENRC to buy out the Kazakh miner has gained
support from the board of top shareholder Kazakhmys,
paving the way for the trio to take the company private after
almost six turbulent years.
ENRC's three founders, Alexander Machkevitch, Alijan
Ibragimov and Patokh Chodiev, along with the Kazakh government,
are seeking to acquire the roughly 46 percent they do not
already control, and on Monday they confirmed a bid in cash plus
the government's shareholding in Kazakhmys. They had until 5
p.m. (1600 GMT) to either make a firm offer or walk away.
Kazakhmys has long sought to resolve its troublesome 26
percent stake in ENRC and its support is key for the billionaire
trio, who want to draw a line under a London adventure marred by
corruption probes, governance concerns and boardroom rows.
The suitors - renamed Eurasian Resources - said they would
offer $2.65 in cash plus 0.230 Kazakhmys shares per ENRC share,
a value of 234.3 pence in total. The offer was unchanged in
structure but lower in absolute terms compared with a proposal
sketched in May, due to a sharp drop in Kazakhmys shares.
ENRC's independent directors said they were unable to
recommend a bid that left them "very disappointed" and
"materially undervalues ENRC, its fundamentals, the intrinsic
value of its underlying assets and its growth prospects".
But in the end, that is unlikely to determine ENRC's fate.
Thanks to the limited number of ENRC shares that are freely
traded, it will be Kazakhmys shareholders and not ENRC's
independent directors that hold the casting vote. Kazakhmys's
support alone will take the bidders to 80 percent.
Two of Kazakhmys's largest shareholders, former chairman
Vladimir Kim and Chief Executive Oleg Novachuk, have given their
backing to their own board's approval of the ENRC bid. But
voting structures mean the deal will need to be supported by the
majority of Kazakhmys minority investors.
Independent shareholders will be voting on the deal itself
but also, critically, will be alone in voting on a waiver for
Kim, Novachuk and smaller shareholder Eduard Ogay whose
increased holdings as a result of the share slice of the deal
would normally trigger a mandatory buyout.
END OF THE AFFAIR
Kazakhmys's board, in backing the bid on Monday, said it had
sought to increase the cash portion of the offer but failed.
The bid was, it said, "the best alternative" given what it
said was the "considerable" risk that value would erode further
without an offer. Indeed, given the bidders' holding and the
absence of rival suitors, analysts had predicted a sharp drop in
ENRC shares if the offer collapsed.
"In the light of the significant issues currently facing
ENRC, and the prospects for ENRC and the impact on its value if
the offer does not proceed, the board of Kazakhmys believes that
the offer represents the only realistic opportunity to realise
value for the group's investment in ENRC," Kazakhmys's chairman,
Simon Heale, said.
Seeking to woo its own shareholders, Kazakhmys outlined
reasons for supporting the offer, including $887 million in cash
and 77 million shares that will boost its finances at a time
when it is developing mines. The shares will be cancelled.
The offer also ends Kazakhmys's association with troubled
ENRC, increases the number of shares freely available to trade
to over 50 percent and removes the Kazakh government as a
Yet Kazakhmys's shares were down 8 percent at 247.7 pence,
around their lowest levels since mid-2008. They were hit by the
prospect of the government's shareholding being handed to ENRC
shareholders - an effect not dissimilar to a share placing,
given many will sell - and as traders fretted over the loss of
earnings and an increased exposure to gold and silver at a time
when precious metals prices are suffering.
Macquarie analyst Alon Olsha said the sale of ENRC would
leave Kazakhmys looking expensive on an earnings multiple basis,
though "that doesn't reflect the beneficial impact on the
"It does now put the focus squarely on Kazakhmys's core
(business)," he said.
Societe Generale, Sberbank and VTB Capital are advising
Eurasian Resources. ENRC's board is being advised by Lazard and