How Fortescue Metals Group Limited (ASX:FMG) just shocked the market

Iron ore miner Fortescue Metals Group Limited (ASX: FMG) surprised the market on Thursday, announcing the acquisition of 15% of Atlas Iron Limited (ASX: AGO), at a price of 4 cents per share. The offer entails a 25% premium on Atlas’s last closing price of 3.2 cents.

Fortescue also has a cash settled swap relating to 4.9% of Atlas’s ordinary shares. As a result, Fortescue’s interest in Atlas amounts to nearly 20%.

Atlas – a small miner based in the Pilbara region – recently suffered from widening discounts on its low-grade iron ore. It’s not clear whether Fortescue is looking to take over Atlas or simply prevent the competition from doing so.

In fact, Atlas signed a binding agreement with Mineral Resources Limited (ASX: MIN) in April, under which Mineral Resources would have bought its entire share capital via a scrip consideration, with an implied price of 3.02 cents per share.

The board of Atlas unanimously recommended the proposal, but now Fortescue is declaring it won’t support it, at least on the current terms.

The news hasn’t benefited any of the related stocks. Fortescue is down 1% to $4.75, Mineral Resources is down 0.5% to $18.66 and Atlas fell 3% to 3.1 cents per share.

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Motley Fool contributor Tommaso Autorino has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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