INVESTORS have challenged a foreign consortium to dramatically improve its $1 billion takeover bid for Australian steel and iron ore producer Arrium, by lifting shares 7 per cent higher than the offer price.
Arrium shares yesterday eclipsed the 75¢ offer price for the first time since the takeover was proposed by a consortium involving Korean steel giant Posco and commodities trader Noble Group.
The closing price of 80¢ means the stock, known as OneSteel until recently, has appreciated 45 per cent in the space of a week.
The offer was rejected by Arrium executives on Monday, and most observers expect an improved bid soon. Arrium owns a loss-making steel mill in Whyalla, a growing business in grinding products for the mining industry, and most crucially, a growing iron ore export business.
Debate over the legitimacy of the consortium’s offer price has focused on the future of the iron ore industry, recently shaken by an extraordinary price slump.
Arrium executives say the bid was rushed to market to take advantage of a temporary slump in the benchmark iron ore price, which after spending most of the year above $US130 per tonne dropped below $US87 last month and has settled around $US104 per tonne this week.
Several analysts agreed this week that Arrium’s iron ore business was likely to be the main target of the takeover, particularly given its 6-million-tonne production rate will increase to 9 million tonnes by the middle of 2013.
But the consortium, which has dubbed itself Steelmakers Australia, argues the iron ore pricing slump is not temporary, and the 75¢ offer price reflects a new, humbler reality for the commodity, which was fetching $US191 per tonne in early 2011.
Indeed most investment banks have drastically revised their forecasts for the iron ore price over recent months, with all predicting lower prices in coming years.
Morgan Stanley this week shaved 10 per cent off its iron ore price forecasts and now predicts an average price of $US120 per tonne in 2013.
Barely three months ago, a range of banks, including Morgan Stanley, Macquarie and JPMorgan, were tipping the benchmark price to be about $US150 per tonne in mid-2013, but all have revised their expectations.
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