Stunning day one endorsement for Northern Star-Saracen combo

There is a natural inclination to think that in a nil premium scrip merger, one set of shareholders – usually the smaller of the two - is being done over (writes Barry FitzGerald on MiningNews).
9th October 2020
Resources Rising Stars

There is a natural inclination to think that in a nil premium scrip merger, one set of shareholders – usually the smaller of the two - is being done over (writes Barry FitzGerald on MiningNews).

To placate the unhappy, the merging entities point to the re-rating to come from the marriage because of its "compelling" logic, and because it comes with a bagful of synergy benefits to be shared by all.

The problems with that is while the claimed synergy benefits can be quantified to a degree, the timing and scale of the promised re-rating cannot.

And so it was with the industry shaping A$16 billion merger announced on Tuesday between Northern Star and Saracen. The usual quibbles were trotted out.

There was mumbling in some quarters that a premium bid for Saracen from the larger Northern Star would have been preferable.

And there was criticism on the lack of granularity around the "unique" synergies that would unlock $A1.5-2 billion in pre-tax value over what some said was an inordinate 10 years.

Despite the quibbles, Northern Star and Saracen received a stunning day one endorsement for their marriage plan from the market, the best judge of this things.

Northern Star shot $1.47 or 10.6% higher to $15.29 and Saracen added 50c or 9.5% to $5.72.

The gains meant the $16 billion combined market caps of the separate companies had become $17.7 billion, based on Northern Star's post-merger expanded issued capital of 1.15 billion shares.

Somewhat remarkably, the $1.7 billion value uplift in a day - even if the merger will not be completed until February - was pretty much shared.

Northern Star's offer of 0.3763 shares for each Saracen represents a respective 64:36 value split in the merged group, based on the pre-bid market prices.

(Saracen shareholders will also receive a 3.8c a share special dividend on the merger becoming effective, although it was in the works anyway).

After Tuesday's endorsement by the market, the value split had shifted ever so slightly in Northern Star's favour.

But it would be hard to argue that Saracen shareholders (it has more than 50% common ownership with Northern Star) were being done over. After all, the single day value uplift for Saracen alone was $553 million.

It showed that the market agrees with the assessment by Saracen managing director and future MD of the enlarged Northern Star, Raleigh Finlayson, that the merger was a unique opportunity, one unlikely to be replicated via any other avenue.

Read more at https://www.miningnews.net/barry-fitzgerald/opinion/1396623/stunning-day-one-endorsement-for-northern-star-saracen-combo

 

Image credit: The Australian

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