Billionaire drops bid for Whitehaven

Where to now for the billionaire mining magnate?

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published August 24, 2012 1:37 pm AEST

Shares in coal producer, Whitehaven Coal Limited (ASX: WHC) have fallen by over 10% this morning, after Nathan Tinkler withdrew his bid for the company. Tinkler had offered $5.20 cash per share for the remainder of shares that he did not already hold.

Investors had appeared to price in a significant chance of the bid failing. Shares in Whitehaven have traded at a significant discount to the offer price, since the Tinkler Group announced its proposal on 13 July 2012.

The signs were there that the deal was unlikely to proceed. As we mentioned a few weeks back, Nathan Tinkler's private investment company, Mulsanne Resources, owed Blackwood Corp Ltd (ASX: BWD) $28.4 million and appeared unable to come up with the funds. That placed plenty of doubt over the possibility of Mr Tinkler raising the $5.3 billion needed to take over Whitehaven.

A report in today's Australian Financial Review suggests that more bad news could be heading Mr Tinkler's way. Apparently he has borrowed around $500m against his existing stake in Whitehaven. According to the company, the Tinkler Group holds 21.6% of Whitehaven's shares. At the current price of around $3.08, Tinkler's stake is worth less than $350m – well below the margin loan amount. That could lead to his margin lender selling off shares.

Whitehaven is Australia's largest independent coal company by market capital and resources, ahead of New Hope Corporation (ASX: NHC) and Gloucester Coal Limited (ASX: GCL). The company has plans to ramp up production of coal from 6 million tonnes in 2012 to 25 million tonnes in 2016, but those plans could be in doubt after coal prices slumped by 20% this year to around $92 a tonne.

Foolish takeaway

It's doubtful that Mr Tinkler will be able to come back and make a successful lower bid, as the Whitehaven board are unlikely to support it – some broker analysts have valued the company at over $5.00. I'm sure we'll hear more about this story in the weeks ahead.

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Motley Fool writer/analyst Mike King doesn't own shares in any company mentioned. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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