Tinkler Tickles Whitehaven

TinklerOn the 13th July Whitehaven Coal announced it had received an approach from Tinkler Group proposing an indicative and non binding privatisation proposal at $5.20 per share. The proposal is complex with the creation of a new vehicle, unlisted, that may swap scrip with Whitehaven shareholders to the extent of 48.3% of the company while paying  $5.20  per share to the balance of shareholders with the caveat that further equity may be required if cash acceptances were higher than 45% of the register.

This is not  a straight forward deal which is reflected in the current stock price that is currently around $4.00. It is easy to dismiss this proposal but there is enough substance to justify the directors of Whitehaven establishing a data room to allow due diligence. This is the second time such a facility has been established in the last year, in this case exclusivity belongs to Tinkler for four weeks. The critical issue for Directors granting due diligence were signed but conditional Letters of Support by UBS, JP Morgan and Barclays.

It is easy to dismiss this deal; funding is not in place and the proposed price is far from firm. In the end, however, the value of this stock comes down to valuation rather than emotion, sentiment and extrapolation from the latest thought bubble. The market is dismissive, we are less so.

Whitehaven is in our portfolio because we believe the value of one of the few remaining coal producers of size is under estimated by the market. The same thing happened in Macarthur Coal last year where the market gave the stock a price of $11.00 in June 2011 prior to a takeover completed at $16.25 only months later.

Quest own around 8 million Whitehaven Coal shares.