Iron Ore Bear Market Induces Low Arrium Bid
Traders have become so bearish on the iron ore market that the industry’s most insulting takeover bid ever is seen as the best that Arrium Ltd. can get.
The Sydney-based company, which makes steel and mines iron ore, this week said it rejected a takeover offer of A$3.2 billion ($3.3 billion), including its net debt, from a group including South Korea’s Posco and Hong Kong-based Noble Group Ltd. The bid values Arrium at 0.71 times its net assets, cheaper than any iron or steel company acquisition of more than $100 million on record, and less than a third of the industry’s median deal valuation, according to data compiled by Bloomberg.
Even after rising 37 percent this week, Arrium shares remained below the bid price through yesterday, reflecting traders’ concerns that there may not be a higher offer as iron ore heads for the worst bear market in two decades, said IG Markets Ltd. Iron ore prices have already fallen by almost half from last year’s peak to $104.20 a metric ton. Arrium borrowed heavily to transform itself into a mining company and processor of iron ore, and now risks violating its debt covenants if the raw material averages less than $100 next year, according to Credit Suisse Group AG.