Murchison investor Harbinger buys into rival Midwest

HONG KONG, May 29 (Reuters) - U.S. investment company Harbinger Capital, the biggest shareholder in iron ore miner Murchison Metals Ltd (MMX.AX), has built up a stake of 8.1 percent in rival miner Midwest Corp MIS.AX, the subject of a takeover battle between Murchison and China's Sinosteel.

Harbinger said in a regulatory filing that it had acquired 8.1 percent of Murchison, which is vying with Midwest to dominate a fast-growing iron ore production region in Western Australia.

Many analysts agree that it makes strategic sense for Murchison and Midwest to join forces, enabling them to cut costs and share port and rail infrastructure as they channel iron ore supplies to Asia.

Murchison owns almost 10 percent of Midwest and has proposed merging, an attempt to wrest the company from Chinese state-owned commodities trader Sinosteel, which has launched a takeover bid.

Midwest's board has approved both deals and both parties say they are confident of success.

Murchison's A$1.65 billion ($1.6 billion) all-stock offer has a much higher implied value, but Sinosteel says it expects Murchison's share price to come down and its A$1.36 billion cash offer to prevail.

Harbinger has backed Murchison's merger plan.

"This is a very exciting development, as I believe that combining Murchison and Midwest will underpin the future of this important new iron ore province," Harbinger Chairman Philip Falcone was quoted as saying in Murchison's statement on the merger plan on Monday.

"I have every confidence that this merger will deliver significant value for shareholders of both companies."

Sinosteel's offer of A$6.38 for each Midwest share is conditional on getting at least 50 percent acceptance. Otherwise it will pay only A$5.60 per share, well below the A$7.06 the stock was trading at by 0223 GMT on Thursday. Murchison's shares were trading at A$4.20, implying its offer would be worth A$7.31. Sinosteel called Murchison's bluff on Wednesday by saying it would not offer more and criticising Murchison's merger, which it said would not be put to shareholders for three months at least and sought to get round Australian takeover rules.

Midwest's shares have jumped more than 10 percent since Murchison's merger offer, with large volumes traded.

Murchison did not make an immediate response to Sinosteel's statement.

(For more on Sinosteel's position, click [ID:nHKG339774] ($1=A$1.04) (Reporting by Tom Miles; Editing by Ken Wills)