Dow Jones reported that AUD 3.54 billion takeover offer by China's Yanzhou Coal Mining Company Limited for Felix Resources Limited could stumble upon political and regulatory hurdles contained investors' enthusiasm for the deal on August 14th 2009.
Felix shares traded below Yanzhou's offer price while Yanzhou shares narrowed early gains as investors weighed the chances of Australian government approval of the deal.
If successful, the transaction would be the biggest Chinese takeover of an Australian company to date but the deal, announced recently must first win approval from Australia's Foreign Investment Review Board, or FIRB at a time Chinese investment in Australia has become a politically charged issue.
Shareholder approval is unlikely to be a stumbling block with directors who control 49% of the stock backing the deal, subject to a higher offer emerging. Chances of a rival bid also appear low although several potential counter bidders were being canvassed by the market.
Mr Tom Sartor analyst of ABN Amro said that the offer was at a significant premium to his valuation of the stock at AUD 12 per share and that shareholder approval looked guaranteed.
Mr Sartor said that he could not see any strategic or national interest issues that would give the Australian Government reason to scuttle the deal but that recent developments in relations between the 2 countries were creating market uncertainty.
He said that "We believe the deal warrants FIRB approval, however market perception of this being a potential stumbling block in relation to strained Australia and China iron ore trade relations and foreign investment decisions may see nervous investors selling under the implied terms."
Relations between Australia and China have been strained by the arrest of four Rio Tinto Limited employees as well as Rio's decision to abandon a USD 19.5 billion deal with Aluminum Corporation of China and this year's heated round of annual iron ore price talks.
Mr Martin Ferguson resources and energy minister of Australian said that he could not comment on individual cases but that Australia remains open to Chinese investment. He said that "Australia has a long history of welcoming foreign investment and it is encouraging to see continued interest in Australian resource development by companies from China and elsewhere around the world."
(Sourced from Dow Jones)
