UK gemstone miner Gemfields is stuck between a rock and a hard place.
The company is encouraging its minority shareholders to accept a £256m takeover bid from Chinese conglomerate Fosun despite thinking the offer is unreasonable, in order to avoid an even more “derisory” buyout bid from its largest shareholder.
Last month, South African private equity group Pallinghurst made an unsolicited offer of 37.1p per share for the 53* per cent of Gemfields that it does not already own.
In response to the bid, Gemfields – which owns the Fabergé jewellery brand – announced that it had entered discussions with Fosun Gold over a potential rival offer of 40.85p per share.
On Tuesday, Fosun confirmed it has made a formal bid at a higher price of 45p per share, an 18 per cent premium compared to Gemfields’ share price before the Pallinghurst offer was announced.
Fosun chief executive Wang Qunbin said the company was impressed by Gemfields’ “long-term business potential, in particular in the China market”, and Fosun said its cash offer provides a “compelling alternative” to Pallinghurst’s all-share bid.
Gemfields’ board was less enthusiastic – the board and its financial advisers said the terms of the offer “are not fair” or “reasonable”. Even at today’s higher offer price, the bid still represents an 18 per cent discount to where the company’s shares traded only six months ago.
Still, Gemfields has decided the Fosun offer represents the lesser of two evils, and recommended shareholders accept the offer.
Pallinghurst has secured enough commitments from Gemfields shareholders to reach the 75 per cent acceptance threshold that would allow it to delist the company from Aim, but the undertakings stop being binding if a rival bid at a greater than 10 per cent premium emerges.
Given the challenges that the unsolicited Pallinghurst offer poses to the independent future of the company, and given the derisory nature of the unsolicited Pallinghurst offer, the independent committee intend to recommend that shareholders accept the Fosun offer so as to secure a relatively more attractive outcome for their investment.
Shares in Gemfields were up 4 per cent at publication time, to 42.25p per share.
*This post has been updated to reflect that the size of the Gemfields stake is 53 per cent.