Here’s why the Yancoal share price is crashing 15% lower today

Yancoal shares are sinking on Monday…

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Key points

  • The Yancoal share price is falling heavily on Monday
  • This comes amid news that Yancoal could be taken over for a substantial discount to its valuation prior to today
  • China's state-owned Yankuang Energy is seeking to acquire the shares it does not already own for $5.07 per share

The Yancoal Australia Ltd (ASX: YAL) share price has started the week deep in the red.

At the time of writing, the coal miner’s shares are down 15% to $5.17.

Why is the Yancoal share price sinking?

Investors have been selling down the Yancoal share price on Monday following the release of a shock announcement.

According to the release, Yancoal’s majority shareholder, China’s state-owned Yankuang Energy, is considering a transaction to acquire enough Yancoal shares to force a takeover.

The release notes that the acquisition structure may be satisfied by the issuance of H-Share Convertible Bonds by Yankuang Energy and could result in the de-listing of Yancoal’s shares from the Australian share market.

In addition, management revealed that the potential transaction values the company well below where the Yancoal share price was trading on Friday. Yankuang Energy’s offer is the equivalent of $5.07 per share, which was 16.6% lower than its last close price.

This is despite Yancoal reporting bumper profits and free cash flow at present thanks to strong demand for coal.

Though, given its substantial holding, Yankuang Energy would only need a few other major shareholders to accept the deal to get it over the line. Much to the dismay of retail shareholders, some of which may have bought in at much higher prices.

What now?

The Yancoal board has appointed an independent board committee to evaluate the potential transaction and make a recommendation to independent shareholders.

In addition, the committee has appointed Gilbert + Tobin as its Australian legal adviser and Deloitte Corporate Finance as strategic and commercial adviser.

It also advised that there is no certainty that the potential transaction will proceed. As a result, the company has stated that Yancoal shareholders should not take any action in respect at this stage and are advised to exercise caution when dealing in Yancoal shares.

All in all, this looks likely to be a very volatile period for the Yancoal share price.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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