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‘All to play for’ in the Gemfields tug-of-war as Pallinghurst’s support questioned

Pallinghurst needs at least half of its investors to back the deal which it claims it has already received, but Fosun Gold and Gemfields disagree
For Fosun to have any chance of usurping Pallinghurst, it needs the latter's shareholders to vote against the proposed offer

It looks like it is all to play for between Pallinghurst and Fosun Gold in their tug of war for Gemfields PLC (LON:GEM).

The emerald and ruby miner has questioned whether Pallinghurst – which already owns 47% of the AIM-quoted company – has the support it needs to press ahead with its offer.

READ: Gemfields advises investors against Pallinghurst offer

Pallinghurst – led by former BHP Billiton plc (LON:BLT) boss Brian Gilbertson – has said it has the support of 61.25% of Gemfields shareholders for its offer, which made its nil-premium offer unconditional.

Pallinghurst shareholders to vote on Monday

However, South Africa-listed Pallinghurst also needs the backing of its own shareholders in order to push the deal over the line.

It needs more than 50% of investors to approve the deal at next Monday’s (26 June) EGM, and reckons it’s received irrevocable undertakings from 50.3%.

Should that be the case, Pallinghurst would have the necessary backing from both sides to take majority control of Gemfields.

It would also nullify Fosun Gold’s 45p a share cash offer, which it has previously said is only valid if it can take at least a 50% stake in Gemfields.

READ: Gemfields reluctantly recommends Fosun offer

Given that Pallinghurst has support that would see it own at least 61% of the miner, the only way for Fosun to get in on the action is if Pallinghurst shareholders vote against the proposed takeover.

How could that happen if Pallinghurst already has the backing of its shareholders?

It all comes down to legalese and how the conditions of the irrevocable undertakings have been written and interpreted.

When Pallinghurst proposed the offer back in May, it said it had the backing of shareholders representing 50.3% and stated that:

“These irrevocable undertakings cease to be binding upon the earlier of: (i) the date on which the Conditions lapse as a result of the failure or non-fulfilment of any of the Conditions; or (ii) the date on which the Offer is implemented.”

Make of that what you will. Pallinghurst is convinced that these are binding agreements, while Fosun and Gemfields think there is a way for some of those shareholders to retract their support.

“Despite the irrevocable undertakings that Pallinghurst has received from certain Pallinghurst shareholders to vote in favour of the ordinary resolution to approve the offer, the Independent Committee believes that (given the terms of the undertakings) there is the possibility that Pallinghurst will not receive the necessary majority to pass the ordinary resolution,” said Gemfields in a statement today.

Either way, sources close to the deal say it’s all to play for come Monday.

City broker thinks Pallinghurst likely to come out on top

City broker Numis Securities believes that the Pallinghurst bid will come out on top, even though it considers the Fosun offer to be a better deal for Gemfields shareholders.

“Whilst we believe that both offers materially undervalue Gemfields and that fair value is our 94p per share, we believe the 45p Fosun cash offer to be the superior alternative,” wrote analyst Justin Chan in a note to clients.

“However, Pallinghurst’s 48% direct shareholding and 73% total direct and indirect holding makes it difficult to imagine a scenario in which Pallinghurst’s bid will not be successful.”

Chan adds that, in his opinion, Pallinghurst should at least match Fosun’s offer, although he notes that “thus far Pallinghurst has operated with minimal decorum with regards to this transaction”.

Shares in Gemfields shed 5% to 40p.

--Updates for share price, broker comment and additional info--

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