South32 hires advisers to boost defences
South32, the mining group demerged from BHP Billiton, has hired advisers to bolster its defences in the event of a bid for the A$9.4bn Australian company which has seen its shares fall 19 per cent since listing in May.
South32 is working with Macquarie and Morgan Stanley, according to people familiar with the matter, as its falling equity valuation and an expected $1.9bn writedown have led to speculation of interest from suitors.
The move to hire advisers, which took place in the last several weeks, comes as miners had their stock prices knocked sharply by a fresh downturn in commodity prices. South32 and the two banks declined to comment.
While the slump has hit the sector broadly, South32 is one of the few mid-sized mining companies that is seen as a target for larger groups or private equity bidders.
Analysts have said South32’s portfolio could attract bidders including Glencore, the commodities trading house run by Ivan Glasenberg, or X2, the private equity vehicle targeting the sector, which offered to buy the assets from BHP Billiton last year.
BHP spurned the approach from X2, which is led by Mick Davis, the former head of Xstrata. X2 is in “serious” talks with Rio Tinto about a multibillion-dollar offer to buy some of that miner’s Australian coal assets, the FT reported last month.
Meanwhile, Glencore is thought to view South32 as still too expensive in spite of the weakness in commodity prices.
Perth-based South32, named from the latitude linking its main operations in Australia and South Africa, was assembled from assets previously controlled by BHP, the world’s largest mining group.
The portfolio - deemed non-core by BHP - includes aluminium, manganese, coal and a large silver mine.
South32 is led by Graham Kerr, the former chief financial officer at BHP. Shares in South32 fell 3.4 per cent to A$1.73 on Thursday, near its lowest level since listing. BHP lost 2.9 per cent to A$25.50, its fifth-biggest one-day drop of the year. The pair were among the worst performers on Australia’s S&P/ASX 200, which dropped 0.4 per cent.
Graham Kerr, chief financial officer of BHP Billiton Ltd., speaks during the Bloomberg Australia Economic Summit in Sydney, Australia, on Wednesday, April 10, 2013. BHP, the world's biggest mining company, expects annual economic growth in China to moderate toward 6 percent, saying prospects in its largest customer present its main business risk. Photographer: Brendon Thorne/Bloomberg *** Local Caption *** Graham Kerr©Bloomberg
Graham Kerr
In a recent report, analysts at Citigroup said South32 could be a target for Glencore, saying the company would be comfortable increasing its exposure to coal and South Africa.
Citi said Glencore’s marketing team would also “salivate” at being the largest producer of manganese and the trading opportunities that could present.
However, South32’s valuation is not at a level where it would attract serious attention from Glencore, say industry watchers. A bid from a Chinese entity is also seen as unlikely because of South32’s aluminium business. China has a surplus of the lightweight metal that it is exporting to the rest of the world and does not need to increase its exposure.