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Arrium knocks back offer

Steelmaker and iron ore miner Arrium Limited (ASX: ARI) (ex-OneSteel) has received a takeover bid from Korean steel giant, Posco and its partner, Singapore based commodities trader Noble Group. The offer is for 75 cents per share, valuing Arrium at around $1 billion, a premium of 39% above its closing price last Friday of 54 cents.

The board of Arrium have rejected the offer, stating it undervalues the company (as if they’d say anything else), but state governments, unions and the Federal opposition have welcomed the offer.

According to the Australian Financial Review, Posco believes it can turnaround Arrium’s steelmaking division with its technology, while the steel giant has made no secret that it wants to secure control of at least 50% of Posco’s own iron ore supply.  The deal would give Posco the control it wants, while Noble Group is expected to pick up the marketing rights for Arrium’s iron ore, currently held by BHP. Control of Arrium would also allow Posco to produce cheaper steel, and compete more effectively against global steelmakers.

Arrium is on track to become Australia’s fourth largest iron ore exporter, with output expected to be 12 million tonnes by next year, behind the big three of Rio Tinto Limited (ASX: RIO)BHP Billiton (ASX: BHP) and Fortescue Metals Group (ASX: FMG).

The deal has plenty of hurdles to make though, including approval by the Foreign Investment Review Board, governments and the Defence Force. Arrium owns some small iron ore assets in the Woomera defence region in South Australia.

In 2010, Federal Treasurer blocked the initial takeover of Oz Minerals (ASX: OZL) by China’s MinMetals on national security grounds, because Oz Minerals’ Prominent Hill mine was on Defence department land. MinMetals later changed its proposal to include all of Oz Minerals assets, except for Prominent Hill.

There is also media speculation that should the bid fail, Arrium could look at a merger deal with Bluescope Steel (ASX: BSL), although the ACCC may take a dim view of that, given the large market shares of Australia’s steel industry held by the two.

The Foolish bottom line

Arrium will likely try to get a better price for its shareholders, and although there’s still plenty of water to flow under the bridge, it’s likely we’ll not see Arrium (ex-OneSteel) listed on the ASX for much longer.

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Motley Fool writer/analyst Mike King owns shares in BHP. 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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