Valuer's Report Gives Miner A Fighting Chance To Thwart Bid

The Age

Thursday November 22, 2001

MALCOLM MAIDEN

WMC chairman Ian Burgess hasn't always been a fan of specialist company valuation firm Grant Samuel.

Three years ago, in his role as chairman of AMP, he told shareholders in the GIO insurance group that a Grant Samuel valuation of GIO was ``deficient in many fundamental areas".

Mr Burgess didn't make an appearance at yesterday's press conference to unveil WMC's demerger proposal, but one can assume he thinks more highly of Grant Samuel's latest effort.

The valuation ordered up by WMC's board is a cornerstone of WMC's defence against a low-ball bid, because it sets up a base price for the group that is $1 above Alcoa's informal offer of $10.20 a share. The demerger is intended to re-order WMC's assets so that the market can see the sense in Grant Samuel's numberwork.

Alcoa can now either pay more to win the support of the WMC board, or wait to see whether sharemarket value is teased out by the reconstruction.

WMC's chairman knows better than most that valuations that look sensible on paper are sometimes proved to be otherwise.

He believed Grant Samuel's estimate of GIO's worth was too high in 1998, and told GIO shareholders so.

As it turned out, the real question was not how much GIO was worth, but whether it was worth anything at all. After a bitter battle, AMP won control of the New South Wales-based general insurer, but GIO was ready to implode under the weight of reinsurance losses.

AMP wrote off more than $1billion to experience, and Burgess left the board in March last year as part of a wholesale reshuffle.

The WMC valuation looks to be safer. There are no reinsurance-style disasters lurking inside the mining group, which consists of four world-class assets after the sale of smaller businesses including WMC's gold mines in the past few years.

WMC's 40 per cent stake in the alumina venture, AWAC, has been difficult for the market to value, partly because it is controlled by Alcoa, and unlisted.

Valuation comparisons in Grant Samuel's report suggest that the price range of $7.26 billion to $8.04billion placed on the holding is broadly in line with similar assets.

It's not a lay-down slam for WMC. Grant Samuel assumes, for example, that the Australian dollar will stay at 51 US cents, and if it rises, WMC's revenues and profits would be squeezed.

The rough draft of the demerger unveiled yesterday also assumes that the minerals arm will take on all of WMC's debt of $2.68 billion. That's the best tax solution but, as managing director Hugh Morgan acknowledged yesterday, it could raise funding issues for future development.

All in all, however, the plan looks pretty good. It could force a higher bid or drag WMC's shares higher - both better outcomes than capitulation in the first round.

© 2001 The Age

Back to News Index | Back to Home