IGO's $1.1bn bid for Western Areas looks shaky

Investors who assumed that IGO’s (ASX: IGO) relatively benign $1.1bn bid for rival nickel miner Western Areas (ASX: WSA) was all but a done-deal have reason to believe the opposite might now be true.

IGO was trading around -2.70% lower after lunch following revelations that an independent expert report (IER) into the planned nexus has counselled against the deal proceeding.

Following Western Areas’ trading halt on Monday, citing an update on the takeover, IGO has since released a statement which suggests the deal is about to fall over.

Can the show go on?

IGO’s statement notes the independent expert engaged by Western Areas to review the takeover has concluded that “the scheme is neither fair nor reasonable to Western Areas shareholders and is therefore not in the best interests of Western Areas shareholders”.

“IGO will consider all options with respect to the Scheme once the draft IER is received and reviewed. However, there can be no guarantee that the Scheme will proceed,” the company said.

What a difference three months makes

In fairness to Western Areas shareholders, the world is a different place since IGO attempted to the consolidate the WA nickel sector through a $3.36 a share offer for Western Areas in December.

It’s hardly surprising that the $1.1bn valuation may not be regarded as a fair price, especially given where the price of nickel is now at.

Haven’t we been here before?

Fast forward to April, and the price of nickel has soared from US$19,422/tonne mid-December to US$33,231/tonne.

The bid has also encountered opposition from major Western Areas shareholder Andrew Forrest’s Wyloo Metals. Other shareholders – including Odey Asset Management – are also aggrieved that a ‘friendly’ deal cut between IGO and Wyloo disadvantaged minor shareholders.

Knowing what we know now, it’s highly likely that when Western Areas resumes trading on Thursday it will reverse the recommendation the board made in December, when they encouraged Western Areas shareholders to accept the deal.

Consensus recommendations on IGO and Western Areas are Hold and Moderate Buy respectively.