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Lynas share price tumbles lower after rejecting the Wesfarmers takeover offer

In morning trade the Lynas Corporation Ltd (ASX: LYC) share price has tumbled lower after providing a response to the $2.25 cash per share takeover offer from Wesfarmers Ltd (ASX: WES).

What was the response?

According to the release, the Lynas board has evaluated the indicative non-binding highly conditional proposal and concluded that it will not engage with Wesfarmers on the terms outlined within it.

The decision was made after the board drew on the company’s extensive knowledge of stakeholder interests, and current market and operating conditions. Furthermore, it also consulted with its advisers on the terms of the proposal and validated its view as to value.

The board believe Lynas is a unique company and its value is derived from its strong, irreplaceable assets. These include its unique position as the only significant rare earths producer and processor outside China, its tier 1 long life Mt Weld ore body, and the company’s substantial in-house capability and intellectual property that it has created over the past six years.

In light of its decision, Lynas has advised shareholders that they do not need to take any action in relation to the indicative proposal.

What now?

I’m not overly surprised that Lynas has rejected the offer from Wesfarmers.

Although it was a significant premium to the last close price, it was 24% lower than its 52-week high and appeared opportunistic after a sharp share price decline due to concerns over its Malaysian operations.

I think there’s a reasonable chance that Wesfarmers will come back with a better offer in the coming weeks, but I would warn investors against investing in the hope that this happens.

Instead, I would suggest investors keep their powder dry and wait to see how the situation develops in the near time.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. 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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