3 October 2008
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Johannesburg — NO ONE believes the Lonmin story is over yet. If it was an attractive takeover proposition for Xstrata at £33, with other buyers rumoured to be musing over a higher offer, it must look even more attractive at £17,50 after Xstrata's withdrawal. There are a lot of possibilities on what could happen next.
Although some analysts see Xstrata's decision to raise its stake to 25% as a holding move to stave off a rival offer and give it another opportunity to bid for Lonmin, it could also simply be making a very strategic investment.
After having done its valuations on Lonmin, and taken a positive view on the platinum sector, Xstrata could be giving itself the option to make a quick profit if another bidder appears.
In the meantime, Xstrata could be looking at other platinum acquisitions, of which there will be plenty in current market conditions, as junior developers are struggling to raise funding for projects. Smaller deals would be less risky at the moment.
Lonmin, whose underperformance over the past few years has made it an obvious target for takeover rumours, could be vulnerable to new bids from a range of possible acquirers . Contenders could include Gold Fields, Norilsk Nickel, even Aquarius Platinum in combination with another group, as it is too small to make the acquisition on its own.
Lonmin's defences against another bid would be to seek a merger or substantial long-term shareholder on better terms than it would get from a hostile bid from Xstrata, or turn its performance around.
The second option, though, is not achievable in the short term under current management and would probably take a long time to result in a share rerating.
The Bottom Line is Edited By Edward West
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