Gemfields plc (LON:GEM) is at loggerheads with its biggest shareholder Pallinghurst Resources Limited over the future of the mining company.
The private equity firm wants to buy the remaining shares in Gemfields it does not already own and restructure the business to boost its performance.
Gemfields, however, has tried to fend them off by forming an “independent committee” to respond to the offer. It said a review by the committee determined that the deal “significantly undervalues the company, its unique asset base and its leading position in the coloured gemstone sector”.
The independent committee is made up of chairman Graham Mascall, chief executive Ian Harebottle, chief financial officer Janet Boyce and non-executive directors Clive Newall and Finn Behnken. Gemfields considers the committee 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."
Pallinghurst wants overhaul and integration of Gemfields....
Pallinghurst - set up by Gilbertson, the former chief executive of BHP Billiton - on 19 May proposed buying out Gemfields’ minority shareholders in exchange for US$150mln in Pallinghurst shares.
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.
Gemfields shareholders owning 28% of the company agreed to the offer, which boosted Pallinghurst's holding from 47.09% to 75.26%.
But Pallinghurst wants full control of Gemfields, arguing that the miner continues to be constrained by limited access to equity and debt capital, low liquidity in the trading of its shares, and a high cost base, which has affected its profitability.
Under the terms, each Gemfields shareholder would be entitled to receive 1.91 new Pallinghurst shares for each Gemfields share. Pallinghurst also plans to delist Gemfields from London’s AIM market.
Pallinghurst believes the overhaul and integration of Gemfields would allow it to perform to its full potential.
Arné Frandsen, chief executive of Pallinghurst, told South African mining website Miningmx that the decision to consolidate Gemfields was prompted 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 minority investors hit back at at "outrageous" takeover offer...
However, minority investors have slammed Pallinghurst for its “opportunistic” bid, saying most of Gemfields underperformance stems from its loss-making Faberge luxury jewellery unit. Pallinghurst sold Faberge, famed for its intricate, jewelled Russian Imperial eggs, to the company in a controversial £90mln deal in 2012.
One shareholder told The Telegraph earlier this month: “It is completely outrageous Pallinghurst blaming Gemfields for poor performance after what they did to it saddling it with Faberge.”
Another investor said: “It’s brazen. Pallinghurst are effectively buying the company for nothing.”
Unrealised value in Faberge, says SP Angel...
SP Angel, however, thinks there is “tremendous unrealised value” in the Faberge brand.
“While Faberge has been a cash drain since it was acquired by Pallinghurst, and then Gemfields, shareholders should stand to gain significantly if Gemfields sells the Faberge brand in our view,” it said.
Gemfields was last year said to be weighing a potential sale of Faberge. SP Angel said Pallinghurst “well understands the value of the Faberge brand and how to use it to create value particularly in the event of a potential sale to a brand leader like LVMH, DeBeers, Gucci etc”.
The analyst added: “We currently value Gemfields at 70p per share on its mining business. We reckon there is potential to realise a further 18p per share on the sale of the Faberge business and that a good sale of Faberge by Pallinghurst might effectively pay for the majority of their acquisition of the cash generative mining business.”