Shares in Bradken Limited (ASX: BKN) slumped at the open on news that it has broken off merger talks with a private equity consortium.
Shares in the mining services group slumped 3.4% to $1.125 in morning trade when management rejected a request by CHAMP Private Equity and Sigdo Koppers to extend the 60-day exclusivity arrangement that gave the consortium sole access to the company's books.
The consortium said they are still keen on pursuing a deal but are not prepared to put forward a proposal, while Bradken is looking for a commitment and isn't keen on keeping the friends-with-benefits arrangement.
It may not feel like it now but Bradken's decision is a positive one for shareholders on a few fronts. First, it alleviates some of my worries that Bradken's board would be too compliant to CHAMP as some of Bradken's senior executives have close ties with CHAMP.
There is still a real risk that Bradken could agree to terms that are not necessarily in the best interest of minority shareholders but I take some heart from its decision to stand up against the consortium's extension request. If they can't decide after 60 days, then I doubt they will be able to even if they were given another 60 days.
In the meantime, the merger proposal has been a big distraction for the group and management can now return to running the business and completing its restructure.
Bradken may be a dog given the 76% collapse in its share price as it takes the brunt of the mining slowdown, but it's actually one of the standouts from the reporting season in terms of earnings surprise.
The group posted an underlying net profit of $33.9 million and sales of $968.4 million, which were comfortably above consensus estimates on Bloomberg of $31.8 million and $958.6 million, respectively.
Hopefully, management can capitalise on the momentum to win market share and build a base for earnings in the short term.
The third benefit from its rejection of the consortium's request is that it might give other interested parties a chance to have a look-in. Pacific Equity Partners (PEP) and US-based manufacturing and investment corporation Koch Industries had earlier made failed attempts at a takeover.
I am not holding my breath though as the $70 million redeemable convertible preference shares it sold to CHAMP and Sigdo Koppers has complicated things.
Sigdo Koppers is a Chilean-based conglomerate who were keen on merging its mining consumables business Magotteaux Group with Bradken.
Bradken isn't the only merger game to watch. PEP and Koch is believed to be keen on integrated steel producer Arrium Ltd's (ASX: ARI) consumables business, while the market is abuzz with speculation that embattled supermarket giant Woolworths Limited (ASX: WOW) could be carved up by private equity and foreign buyers.
At least there's one upside to owning a struggling company.
