Will Emerald and Ruby Miner Gemfields Accept "Unfair" Takeover Bid?

UK emerald and ruby miner Gemfields (LSE:GEM) is recommending that its shareholders accept a takeover bid from China’s Fosun International (HKEX:0656) even though it believes the offer is unreasonable.
Fosun increased its bid for Gemfields on Tuesday (June 20), raising its initial offer of 40.85 pence per share to 45 pence per share for a total of $324 million.
The bid is a 10.1-percent premium on what Pallinghurst (JSE:PGL), Gemfields’ largest shareholder, offered for the company last month. It’s also an 18-percent premium on Gemfields’ share price before South Africa-based Pallinghurst made its unsolicited bid.

Wang Qunbin, Fosun’s chief executive, said the company is “a long-term value investor” that is attracted to Gemfields’ “professional management team” and “business potential.”
As mentioned, while it believes Fosun’s offer is “not fair or reasonable,” Gemfields is encouraging minority shareholders to accept the bid. The company, which also owns the Faberge brand, is keen to avoid an even more “derisory” buyout bid from Pallinghurst.
Last month, Pallinghurst made an unsolicited offer of 37.1 pence per share for the 53 percent of Gemfields that it does not already own, attempting to buy the company at its May valuation of $250 million.
“[Pallinghurst’s] offer appears opportunistic and being at par, and offering South African scrip for UK equity might not offer appropriate value to minority shareholders,” Edward Sterck, an analyst at BMO Capital Markets, said in a note to investors at the time.
Gemfields rejected the offer saying it “significantly undervalued” the company. While the rival offer from Fosun is better, it is an 18-percent discount to the company’s share price six months ago.
“The Independent Committee are of the belief that the certain cash exit on offer from Fosun Gold is materially more attractive than the unsolicited all-share nil-premium offer from Pallinghurst,” the company said.

Pallinghurst has seven days to raise its bid or accede to the takeover. It previously claimed to have enough commitments from Gemfields shareholders to take the company private, but because Fosun’s bid is more than a 10-percent premium on Pallinghurst’s, those undertakings are no longer binding.
Kieron Hodgson, an analyst at Panmure Gordon, said, “[i]t is certainly at the level I think investors should seriously consider tendering to Fosun. Obviously shareholders and the board would like more, but at least now the offer is all-cash and above £250 million ($315 million) it is within the range we would deem acceptable.”
Gemfields operates a ruby mine in Mozambique and an emerald mine Zambia, among other assets, and produces roughly 30 percent of the world’s colored gemstones. Celebrities like Mila Kunis and Josephine Skriver have been featured in the company’s ad campaigns.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.