Analysts welcome IGO’s improved bid for Western Areas

The market has welcomed IGO’s improved $1.26bn bid for Western Areas, as shares in the nickel producer jumped to match the new bidding price on Monday.

IGO managing director Peter Bradford. Picture: Travis Anderson

The market has welcomed IGO’s improved $1.26bn bid for Western Areas, as shares in the nickel producer jumped to match the new bidding price on Monday.

IGO bumped its offer by 15 per cent to $3.87 on Monday, but warned its new price was the “last and final” offer for its fellow West Australian nickel producer.

The move comes after the friendly tie-up looked in danger of collapse last week, after the independent expert hired by Western Areas to value the transaction recommended against the deal, saying in a draft report it was not “fair or reasonable” to shareholders.

The recommendation came after the extraordinary surge in nickel prices in March, when the London Metal Exchange was rocked by a short squeeze that sent the nickel price soaring briefly above $US100,000 a tonne before trading was suspended and many transactions were reversed.

While IGO warned at the time its view on the long-term nickel price had not been changed by the wild swings on the LME, Monday’s revised offer was met with approval by analysts.

RBC Capital Markets analyst Kaan Peker said in a client note the 51c bump represented a 56 per cent premium to Western Areas share price in August, when news of the potential deal first leaked into the market. “The transaction is fair value, in our view,” he said.

Shaw and Partners analyst Peter O’Connor said the revised bid appeared to be a “win-win” for both IGO and Western Areas.

“A win for Western Areas to achieve a 15 per cent or 51c share bump in bid terms, and a win for IGO is managing to pull off a bid price that still looks favourable given the evolving outlook for nickel price. Kudos both teams,” he said in a client note on Monday.

IGO said Andrew Forrest’s Wyloo Metals had agreed to back the deal at the new price, and will vote Wyloo’s 9.8 per cent shareholding at a shareholder meeting to approve the transaction to be held in May.

A copy of the independent expert report is expected to be sent to Western Areas shareholders later in April.

Western Areas shares closed up 20c, or 5.5 per cent, to $3.85 on Monday, with IGO up 32c to $14.

Originally published as Analysts welcome IGO’s improved bid for Western Areas