TORONTO — Turquoise Hill Resources Ltd. has accepted a sweetened offer by Rio Tinto International Holdings Ltd. for the stake in the company that it does not already own valued at about $4.2 billion.
Under the new proposal, Rio Tinto will pay $43 per share in cash for the 49 per cent stake it does not already hold in the company.
The offer is up from $40 per share Rio Tinto offered last week and higher than the company's earlier bid of $34 per share rejected by Turquoise Hill.
Turquoise Hill owns a 66 per cent stake in the Oyu Tolgoi copper and gold mine in Mongolia. Erdenes Oyu Tolgoi LLC, a Mongolian state-owned entity, holds the remaining 34 per cent interest.
The deal requires approval by a two-thirds majority vote by Turquoise Hill shareholders, including Rio Tinto, and the approval of a simple majority of the votes cast by the company's minority shareholders.
Rio Tinto has said previously that the deal would simplify the ownership structure of the mine and strengthen its copper portfolio.
Ralph Profiti, analyst at Eight Capital, said in a note to clients Thursday that the sweetened offer by Rio Tinto "may be just enough to clear the hurdle of majority-of-minority shareholder support" but isn't ruling out a relatively high degree of risk that minority shareholders still vote the deal down.
Another analyst believes that while the revised bid is a "positive" for Turquoise Hill shares, $43 per share continues to undervalue the company, adding that a higher bid will be required to ultimately close the transaction.
"Oyu Tolgoi is a very large, high-grade, long-life, expandable, world-class Tier 1 copper mine, representing an extremely valuable asset in today’s market," Scotia Capital analyst Orest Wowkodaw said in a note to clients.
Wowkodaw said a higher bid of $50 per share would represent something closer to fair value.
"We continue to believe that the revised bid of $43 is unlikely to result in the majority of minority shares being tendered despite the endorsement of the special committee," he said.
Turquoise Hill first made an offer to buy the 49 per cent stake in the company it does not already own and to take the mining company private in mid-March.
The proposal valued the minority stake in the company at about $3.4 billion.
Under the original offer, Rio Tinto, which already owns a 51 per cent stake in the company, would pay $34 per share for the roughly 99 million shares held by Turquoise Hill's minority shareholders.
Following the original offer, Turquoise Hill said its board of directors would establish a special committee of independent directors to review and consider the proposal.
In mid-August, the special committee said Rio Tinto's offer of $34 per share did not fully and fairly reflect the fundamental and long-term strategic value of the company’s majority ownership of the Oyu Tolgoi project in Mongolia.
Last week, Rio Tinto raised its offer to $40 in cash per Turquoise Hill share.
A special meeting to vote on the new proposal is expected in the fourth quarter of 2022 and, if approved, the deal is expected to close shortly thereafter.
Shares of Turquoise Hill Resources are up nearly 13.76 per cent in early-afternoon trading.
This report by The Canadian Press was first published Sept. 1, 2022.
Companies in this story: (TSX:TRQ)
The Canadian Press
