Shares in Gemfields PLC (LON:GEM) boomed this morning as the ruby and emerald miner looks set to be thrust into the middle of a bidding war.
Chinese conglomerate Fosun Gold has approached miner with a more lucrative cash offer than had already been put on the table by its largest shareholder, Pallinghurst Resources.
Fosun – which is run by billionaire Guo Guangchang – is offering Gemfields shareholders 40.85p in cash, which values the miner at around £225mln.
That’s 10% higher than the nil-premium offer put to shareholders last month by Pallinghurst, which is looking to acquire the 53% of Gemfields it doesn’t already own.
Pallinghurst is looking to pay off shareholders with its own shares as part of any deal, and Fosun said its bid was “a compelling cash alternative at a significant premium to the Pallinghurst offer”.
Pallinghurst has so far declined to comment on Fosun's proposed offer. It is thought that the private equity group - as a big Gemfields shareholder itself - is unlikley to consider a sale of its stake while it seeks to push through a deal itself.
Gemfields operates two mines in Mozambique (Montepuez) and Zambia (Kagem) and produces almost a third of the world’s coloured gemstones.
Gemfields at loggerheads with Pallinghurst
Fosun’s interest comes a few weeks after Gemfields largest shareholder, Pallinghurst, lodged its “unsolicited offer” for the emerald and ruby miner.
It 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 of its offer, each Gemfields shareholder would be entitled to receive 1.91 new Pallinghurst shares for each Gemfields share.
Based on yesterday’s closing price, that works out at roughly 36.5p a share.
The private equity firm believes the overhaul and integration of Gemfields would allow it to perform to its full potential.
Gemfields and minority investors not happy
Following the offer, Gemfields set up an independent board of directors which essentially included everyone but Pallinghurst’s representative – Gilbertson’s son, Sean.
They advised shareholders against approving the offer, claiming that it “significantly undervalues the company, its unique asset base and its leading position in the coloured gemstone sector”.
Minority investors have also slammed the bid as “opportunistic”, pointing out that 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.”
Major shareholders seem a little bit more willing to embrace the approach. According to Pallinghurst it has received assurances from shareholders representing more than 75% of Gemfields’ share capital that they would accept the offer.
It’s uncertain whether that is still the case following the new, higher offer put forward by Fosun today. Pallinghurst was unavailable for immediate comment.
Shares are currently up 13.9% to 40.4p.
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