Gemfields plc (LON:GEM) said independent directors have advised shareholders against approving an offer by Pallinghurst Resources Limited to buy all the shares it doesn’t already own in the gemstone company.
Shares fell 1.63% in morning trading as Germfields said a review by an independent committee determined that the deal “significantly undervalues the company, its unique asset base and its leading position in the coloured gemstone sector”.
Pallinghurst, which already has control of 75.26% of the group’s total share capital, has proposed buying out Gemfields’ minority shareholders in exchange for US$150mln in Pallinghurst shares. Pallinghurst has also recommended delisting the natural resources firm from London's AIM market.
Under the terms, each Gemfields shareholder would be entitled to receive 1.91 new Pallinghurst shares for each Gemfields share.
Pallinghurst offer could dilute Gemfields shareholders, says committee...
Graham Mascall, chairman of the independent committee, said: "The independent committee believes the unsolicited offer has the potential to dilute Gemfields shareholders with inferior assets that offer exposure to more volatile commodities and with less attractive prospects. The unsolicited offer would appear to be driven by Pallinghurst's proposed restructuring which seeks to preserve the Pallinghurst investment managers' own self-interests at the expense of the independent shareholders of Gemfields."
Pallinghurst announced its proposal to buy the outstanding shares of Gemfields on 19 May. Based on closing prices on May 17 and an exchange rate of R17.14 to £1, the deal valued Gemfields at £211.5m or 38.5p/share.
At the time, Gemfields shareholders owning 28% of the company agreed to the offer, which boosted Pallinghurst's holding from 47.09% to 75.26%. The controlling stake will allow Pallinghurst to de-list Gemfields and consolidate it into its group.
Pallinghurst says Gemfields shares have underperformed...
Pallinghurst has said that a proposed restructuring and integration of Gemfields would allow it to perform to its full potential.
The company has argued that Gemfields was an attractive and unique business but continued to be constrained by limited access to equity and debt capital, low liquidity in the trading of its shares, and a high cost base, and hence depressed profitability.
Arné Frandsen, chief executive of Pallinghurst, told mining website Miningmx that the decision to consolidate Gemfields was prompoted by the underperformance of its share price over several years. Shares in Gemfields have fallen 13.92% over the past five years and 20.07% over the past 12 months.
“Gemfields has been on Pallinghurst’s books for 15 years and we have been its bank. But we are not getting a response. It is worth half of our value – the Pallinghurst share price is dependent on Gemfields – and its the key reason why shares in Pallinghurst have gone down. I and my shareholders can’t accept that,” Franden said.
Gemfields independent directors advise shareholders to take no action...
Gemfields said in its statement today that the independent committee "continues to strongly advise its shareholders to take no action at this time” and that a further announcement would be made in due course.
The independent committee is made up of directors Graham Mascall, Clive Newall, Finn Behnken, Ian Harebottle and Janet Boyce, whom Gemfields considers to be "free from conflicts of interest in respect of the unsolicited offer".
Shore Capital analyst Yuen Low said: "In other words, it numbers all of Gemfields’ current directors bar executive director Sean Gilbertson, who is essentially Pallinghurst’s man on the board and whose father Brian (Gilbertson) is chairman of Pallinghurst Resources."