Fortescue Ltd (ASX: FMG) shares are having a subdued session on Tuesday.
In morning trade, the iron ore giant's shares are down slightly to $18.58.
This follows news that the miner has signed an agreement to acquire a fellow ASX mining stock.
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Fortescue shares lower on acquisition news
According to the release, Fortescue has had an offer to acquire Red Hawk Mining Ltd (ASX: RHK) accepted this morning.
Fortescue's offer proposes to acquire all of Red Hawk's shares for a cash consideration of $1.05 per share. This represents a 28% premium to where its shares last traded.
In addition, the offer will increase to $1.20 per share if Fortescue acquires a relevant interest in 75% or more in Red Hawk shares within seven days, by way of an off-market takeover bid. This would be a 46.3% premium to its last close price and values Red Hawk at $254 million.
The good news for Fortescue is that Red Hawk's board of directors has already obtained an independent expert's report from BDO Corporate Finance, which concludes that the offer is fair and reasonable to shareholders.
As a result, the Red Hawk board unanimously recommends that shareholders accept the offer at both the offer price and the increased offer price. This is in the absence of a superior proposal and subject to the independent expert continuing to conclude that the offer is fair and reasonable.
It highlights that the "Offer represents a significant and attractive premium to the market value of Red Hawk. The cash consideration under the Offer delivers immediate value to Red Hawk shareholders and provides certainty, noting the significant risks to the development of greenfield iron ore projects."
What is Red Hawk?
Red Hawk is the owner of the Blacksmith Iron Ore Project.
It is an undeveloped iron ore project located 30 kilometres west of Fortescue's Solomon operations in the Western Hub. The total Blacksmith Mineral Resource estimate is 243 million tonnes at 59.3% Fe grade.
It revealed that Fortescue was one of 17 parties that showed an interest in the Blacksmith Iron Ore Project. The company said:
In total through the process, Red Hawk engaged with 17 parties, including international groups, financiers, iron ore producers, steel mills and commodity traders. […] From this process, the Offer from FMG emerged as the most compelling offer Red Hawk has received and, in the estimation of the Board, provides superior value to Red Hawk pursuing development of the Blacksmith Project independently as contemplated by the PFS.
Red Hawk's Chair, the Hon. Cheryl Edwardes AO, adds:
"Whilst we firmly believe that the Blacksmith Project has the potential to be a major iron ore project, there is significant cost, time and risk associated with developing a project of this scale, particularly in the context of an uncertain broader global economic outlook. As such, the Board believes that the Offer provides shareholders with a compelling opportunity to de-risk their investment and realise certain value at an attractive premium to historical trading levels leading into the announcement of the Offer."
