Pallinghurst faces battle as Gemfields engages rival suitor

PALLINGHURST Resources may be drawn into a bidding war for control of Gemfields after the UK-listed firm said it had solicited a “possible competing offer”.

On the day Pallinghurst lodged its offer document for Gemfields, the coloured gemstone miner and marketer said it had received an approach from Fosun Gold, a subsidiary of Fosun International, a Hong Kong-listed company. It was “actively engaged in discussions with Fosun Gold regarding a possible competing offer for the entire issued and to be issued share capital of the company,” it said.

Gemfields said the approach was soliciated after engaging with its advisors to “… explore ways to deliver maximum value for shareholders and to protect the interests of minority shareholders”. An independent committee established by Gemfields to assess Pallinghurst’s takeover proposal, which includes its CEO Ian Harebottle, said the discussions with Fosun Gold “… may lead to a cash offer at a superior value to Pallinghurst’s unsolicited offer”.

Fosun Gold has until August 5 to lodge a competing offer for Gemfields.

In its announcement today, Pallinghurst said that the first closing of its offer was scheduled for July 4. It launched a bid for the shares it didn’t already own in Gemfields on May 19 in a ratio of 1.91 new Pallinghurst shares for each Gemfields share. Some twelve days later, Gemfields’ independent committee labelled the offer “derisory”.

“The unsolicited offer would appear to be driven by Pallinghurst’s proposed restructuring which seeks to preserve the Pallinghurst investment managers’ own self-interests at the expensive of the independent shareholders of Gemfields,” said the committee. It added Pallinghurst was illiquid and exposed minority shareholders in Gemfields to more volatile commodities such as iron ore in which Pallinghurst is invested.

Pallinghurst’s perspective is that Gemfields’ share price had under-performed for years and the company, which already owns 47% stake in Gemfields, had tired of financing the under-performance. Shares in Gemfields, which fell around 10% shortly after Pallinghurst made its takeover plans public, were down marginally in London today.

The company is capitalised at £194m on the London Stock Exchange against an implied Pallinghurst offer of £118m ($150m).

“Gemfields has been on Pallinghurst’s books for 15 years and we have been its bank,” said Arné Frandsen, CEO of Pallinghurst Resources. “We are not getting a response. It is worth half of our value – the Pallinghurst share price is dependent on Gemfields – and its the key reason why shares in Pallinghurst have gone down. I and my shareholders can’t accept that,” he said.

Gemfields’ independent committee said today shareholders ought to take no action to the Pallinghurst offer and that it would provide an update on its Fosun Gold discussions on or before June 27. Founded in 1992, Fosun International is an industrial and investment conglomerate headquartered in Shanghai.

Gemfields shareholders owning 28% of the company had already agreed to the offer which, including Pallinghurst’s existing 47%, gives Pallinghurst the 75% required to de-list Gemfields from London’s Alternative Investment Market and consolidate it in the larger Pallinghurst group.