Lonmin's chairman says Xstrata's £5.6bn takeover bid undervalues it by £7 a share

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The Independent Online

Lonmin sought to bolster its defence against Xstrata's $10bn (£5.6bn) takeover approach yesterday by suggesting that the company valued its own stock at about £7 a share more than the hostile proposal.

The world's third-biggest platinum producer urged investors not to accept Xstrata's £33-a-share proposal, which was made last month. Lonmin set out calculations that Sir John Craven, the chairman, said valued the company at "well above" Xstrata's approach even before a takeover premium.

Xstrata made its approach when Lonmin was trading at an enterprise value of 7.8 times earnings before interest, tax depreciation and amortisation. Taking Lonmin's long-run ratio of 10.5 would value the shares at £32 before a takeover premium. Rising platinum prices and promised increases in production would further boost the shares' value, the company added.

Lonmin shares had fallen by about 30 per cent in the year leading up to Xstrata's approach after Lonmin repeatedly failed to meet its own guidance on production.

Analysts said Lonmin's figures implied a value of about £40 a share, but that given Lonmin's record any valuation had to include the execution risk ofthe company trying to boost performance.

"The big issue with this document is credibility," Merrill Lynch analysts wrote in a note. "The key question is to what degree should current shareholders benefit [from] turnaround potential of the Lonmin assets. If we assumed the assets are 'worth' £40/sh, how much of a discount should be factored in for the execution risk in an asset turnaround?"

Sir John said: "The board has no hesitation in rejecting Xstrata's entirely unsatisfactory approach, which fails to reflect a proper value for the assets and prospects of Lonmin and the synergies from which Xstrata's rather than Lonmin's shareholders would benefit. We continue to explore all options to maximise value for our shareholders."

Sir John's comments raised speculation that other bidders might be waiting in the wings. A spokesman for Lonmin declined to discuss what other options the company was considering.

Sir John said a further reason that Xstrata's bid undervalued Lonmin was that combining the company would produce cost savings that could be discussed if Xstrata were to submit a formal bid at the right price.

Xstrata, which has built up a 10.7 per cent stake in Lonmin, announced its unsolicited all-cash takeover proposal on 6 Aug-ust. It is expected to submit a formal offer in the next few weeks once it has financing in place.

Lonmin shares closed up 2p at 3,432p.

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