Australia’s Bradken mulls low-ball offer from Bain Capital, Pacific Equity Partners-Reuters

(Reuters) – Australian mining products maker Bradken Ltd (BKN.AX) said it is considering a cut-price $730 million takeover proposal from Bain Capital and Pacific Equity Partners, underscoring the urgency the sector faces amid plunging commodities prices.

Bradken shares surged as much as 40 percent as investors backed the lifeline for a company that has seen profits halve since 2012, as the mining sector slashes spending amid sharp declines in commodities prices. Two days earlier, Bradken said it would shut a foundry in Adelaide city, laying off 119 staff.

United States-based Bain and PEP, Australia’s biggest private equity firm, proposed to buy the company for A$6 a share in August before revising down its proposal to A$5.10 a share, Bradken said in a statement on Friday, adding it was considering the 15 percent lower offer.

The shares closed at A$4.52, their highest since Sept. 12 but well short of their A$9.59 high in January 2011 at the peak of the mining boom.

PEP has been on the hunt for new targets since cashing in on several large Australian investments in 2014, including listing services firm Spotless Ltd (SPO.AX) and toilet paper maker Asaleo Care Ltd (AHY.AX), and failing in a A$1 billion takeover approach for struggling compliance firm SAI Global Ltd (SAI.AX).

“I’m sure they’ve got a lot more aggressive cost cutting of the business (planned) than management are prepared to do,” Morningstar analyst Ross McMillan said, discussing the buyout firms’ approach at the early stages of a mining downturn.
“They’d be happy to sit on this business for three to five years and look at refloating it again.”

In a statement, Bradken said that although it would consider the proposal, it was made “at a low point in the mining cycle during a time of significant share price volatility in the broader mining services sector”.

Its board is reviewing the lower proposal with its advisors Merrill Lynch & Co Inc and Rothschild, Bradken added.