Oxiana (OXR) / Zinifex (ZFX) News Update

Submitted by Jim Thesiger on 13 May, 2008 - 23:00

MRE maintained an outperform recommendation on both ZFX and OXR, with a 12 month price target of A$12.77 and A$4.00 respectively from Australian Stockmarket analyst Macquarie Research Equities.

Oxiana (OxR)/ Zinifex (ZFX): The Arbs Are Nervous

Yesterday Zinifex (ZFX) released its detailed Explanatory Memorandum and Scheme Booklet for its proposed merger with Oxiana (OXR). Macquarie Research Equities (MRE) discuss the independent valuer, Grant Samuel’s analysis of the merger in contrast to their own forecasts. Furthermore, MRE suggest the possibility that another suitor may be “hiding in the wings” given that the spread between the bid price and ZFX has risen to 8%. If this is the case then who are the likely candidates? Click through to find out…

The Merger
Grant Samuel deliberates a merger of equals:

  • ZFX range: $6,193m to $6,939m (MRE: $6,378m)
  • OXR range: $5,944m to $6,726m (MRE: $4,740m)

There is an evident disparity between Grant Samuel’s valuation for OXR and that of MRE. The reason for this marked difference is due to Grant Samuel’s higher longer term copper price consumption. Whereas, the long term zinc assumptions are broadly in line and thus the MRE NPV for ZFX falls within Grant Samuel’s range.

The Bid Spread
One area of concern is the widening spread between the bid price and ZFX share price. This has moved from 2% to 8% and implies that the market has increased it’s expectation that a suitor may lodge a counter bid. Although problematic to speculate on such M&A activity, MRE feel that the potential for a counter bid has increased considerably since the deal was announced. So who then are the possible suitors?.. The two suitors at the top of MRE’s list are Xstrata and Teck Cominco

Recommendation
MRE maintain an outperform recommendation on both ZFX and OXR, with a 12 month price target of A$12.77 and A$4.00 respectively. The catalyst for this view is based on the successful completion of the merger.

Download our FREE App


Signup for Free
Don't miss out on your free share trading articles.


Free Risk Money Management Calculator for those who sign up!