Overview
OZ Minerals Shareholders are being asked to vote on the proposed acquisition of OZ Minerals by BHP Lonsdale Investments Pty Ltd (ACN 004 346 972) (BHP), which is a wholly owned subsidiary of BHP Group Limited (ACN 004 028 077), by way of a scheme of arrangement.
On 18 November 2022, OZ Minerals announced that it had received a Revised Proposal from BHP to acquire all of the shares in OZ Minerals for $28.25 per share in cash via a scheme of arrangement. BHP stated in the Revised Proposal that this offer price represented the “best and final” price it was willing to offer in the absence of a competing proposal.
Earlier in the year on 5 August 2022 BHP had made the Initial Proposal of $25.00 per share which was rejected by the OZ Minerals Board. The Revised Proposal followed a period of engagement between BHP and OZ Minerals in the weeks preceding the Revised Proposal.
After carefully assessing the Revised Proposal, the OZ Minerals Board granted BHP the opportunity to conduct due diligence for four weeks on an exclusive basis (with exclusivity subsequently extended by a week) and to work cooperatively towards entry into a scheme implementation deed with BHP effecting the terms of the Revised Proposal. On 22 December 2022, OZ Minerals and BHP entered into the Scheme Implementation Deed.
The Scheme is subject to customary conditions, including approval by OZ Minerals Shareholders and the Federal Court of Australia, as well as regulatory approvals which are summarised in Section 11.6.1 of the Scheme Booklet
SCHEME CONSIDERATION
The terms of the proposed Scheme provide that OZ Minerals Shareholders will receive from BHP $28.25 cash per OZ Minerals Share held on the Scheme Record Date less the amount of any Special Dividend. As noted in OZ Minerals’ results announcement on 22 February 2023, before the Scheme Meeting the OZ Minerals Board intends to declare a fully franked Special Dividend of $1.75 per OZ Minerals Share before the Scheme Meeting, such special dividend being conditional on the Scheme becoming Effective.
Assuming this Special Dividend is declared, this means that on the Implementation Date:
- BHP will pay $26.50 per OZ Minerals Share in Scheme Consideration; and
- OZ Minerals will pay $1.75 per OZ Minerals Share as a fully franked Special Dividend,
for each OZ Minerals Share held at the Scheme Record Date (which is expected to be 24 April 2023) and the Special Dividend Record Date (which is expected to be 21 April 2023), respectively, which together equal Total Cash Consideration of $28.25 per OZ Minerals Share.
Please note that, if the Special Dividend is declared and the Scheme is implemented, you will only receive the Total Cash Consideration for each of your OZ Minerals Shares provided that you hold all of those shares on both the Special Dividend Record Date and the Scheme Record Date. If you become an OZ Minerals Shareholder after the Special Dividend Record Date, you will not receive the Special Dividend and you may receive less than the Total Cash Consideration of $28.25 per OZ Minerals Share. Similarly, if you sell your OZ Minerals Shares prior to the Scheme Record Date you will not receive the Scheme Consideration.
Certain OZ Minerals Shareholders may be able to realise the benefit of $0.75 franking credits per OZ Minerals Share that will be attached to the fully franked Special Dividend (refer to Section 10 of the Scheme Booklet). The franking credits you may be able to utilise from the Special Dividend will depend in part on your own personal circumstances in respect of which we encourage you to seek independent legal and taxation advice. Further, in assessing the value to them of any Special Dividend, OZ Minerals Shareholders should seek professional taxation advice as to whether or not the receipt of any Special Dividend and any entitlement to a tax offset in respect to the franking credits attached to any Special Dividend is beneficial to them in their own individual circumstances (refer to Section 10). The payment of the Special Dividend is subject to the Scheme becoming Effective, so it will not be paid if the Scheme does not become Effective.
- The Total Cash Consideration of $28.25 per OZ Minerals Share represents an attractive premium of:
- 49.3% to the price at the close of trading of OZ Minerals Shares on 5 August 2022 of $18.92 (being the last trading day prior to the announcement of the Initial Proposal from BHP);
- 59.8% to OZ Minerals Shares’ undisturbed 30-day volume weighted average price of $17.67 per share as at 5 August 2022;
- 46.0% to OZ Minerals Shares’ undisturbed 60-day volume weighted average price of $19.35 per share as at 5 August 2022; and
- 13.0% compared to the Initial Proposal from BHP of $25.00 per share.
OZ Minerals’ share price has a close correlation to the spot copper price. The spot copper price has increased by approximately 16% in Australian dollar terms in the period from 5 August 2022 (being the last trading day prior to the announcement of the Initial Proposal) to 27 February 2023 (being the last practicable trading day prior to the finalisation of the Scheme Booklet). Accordingly, absent the Scheme, the OZ Minerals share price could be higher than at the time of the Initial Proposal in which case the Total Cash Consideration of $28.25 would represent a lower premium than stated above. OZ Minerals Shareholders should also have regard to the section entitled “The Scheme consideration provides OZ Minerals shareholders with a significant premium for control, but this premium needs to be considered in light of prevailing copper prices” on page 9 of the summary letter attached to the Independent Expert’s Report, and section 6.3.2 on page 113 of the Independent Expert’s Report in relation to the premium.
The Total Cash Consideration of $28.25 per OZ Minerals Share implies a fully diluted market capitalisation for OZ Minerals of approximately $9.5 billion and an enterprise value of approximately $9.8 billion.
INDEPENDENT EXPERT’S REPORT
OZ Minerals appointed Grant Samuel as the Independent Expert. The Independent Expert has concluded that the Scheme is fair and reasonable and therefore is in the best interests of OZ Minerals Shareholders in the absence of a Superior Proposal. The Independent Expert has assessed the full underlying value of OZ Minerals at between $27.37 and $30.47 per OZ Minerals Share. The Total Cash Consideration of $28.25 per OZ Minerals Share is within this valuation range.
The Independent Expert’s Report is included as Appendix B to the Scheme Booklet. You are encouraged to read the Independent Expert’s Report in its entirety.
OZ MINERALS DIRECTORS’ RECOMMENDATION
The OZ Minerals Directors have carefully considered the Revised Proposal from BHP and unanimously recommend that you vote in favour of the Scheme in the absence of a Superior Proposal and provided that the Independent Expert continues to conclude that the Scheme is in the best interests of OZ Minerals Shareholders. Subject to those same qualifications, each member of the OZ Minerals Board intends to vote, or cause to be voted, all OZ Minerals Shares in which they have a Relevant Interest in favour of the Scheme.
In reaching the unanimous decision to recommend the Scheme to OZ Minerals Shareholders, the OZ Minerals Directors considered various alternatives to maximise value, including assessment of standalone value creation opportunities. After considering these alternatives, the OZ Minerals Directors formed the view that, on balance, the combination of value and certainty offered by the Total Cash Consideration is likely to deliver a superior outcome for OZ Minerals Shareholders now compared to what would otherwise be available, on a future risk adjusted basis, if OZ Minerals continued to operate as a standalone entity.
Reasons to vote in favour of the Scheme Resolution are set out in detail in Section 3.2 of the Scheme Booklet. There are also reasons why you may choose to vote against the Scheme Resolution which are set out in Section 3.3. Certain risks related to holding OZ Minerals Shares and the Scheme are set out in Section 9. The OZ Minerals Directors unanimously believe that the benefits of the Scheme outweigh its potential disadvantages and risks.
The interests held in OZ Minerals and the benefits of the Scheme being implemented for OZ Minerals’ CEO and Managing Director, Andrew Cole, and the other OZ Minerals Directors, are disclosed in Section 7.14 of the Scheme Booklet. The OZ Minerals Board has exercised its discretion for all of Mr Cole’s outstanding 143,905 OZ Minerals Performance Rights to vest, subject to the Scheme becoming Effective, and Mr Cole will receive a cash payment that is equal to the Total Cash Consideration for each OZ Minerals Performance Right held (being approximately $4.065 million in aggregate). In addition, if the Scheme becomes Effective Mr Cole will not be issued OZ Minerals Performance Rights under the 2023 LTI offer or under the deferred equity component of his 2022 STI award (which would ordinarily comprise 30% of the STI award) but instead will be paid $1,869,525 in lieu of the issue of OZ Minerals Performance Rights and Mr Cole will receive a cash payment of $3,704 for 9,971 OZ Minerals Performance Rights granted to Mr Cole under the deferred equity component of his 2021 STI award being a dividend equivalent amount to reflect the grossed up dividend payments made by OZ Minerals in 2022.
If the Scheme does not proceed, the OZ Minerals Performance Rights held by Mr Cole will remain on issue and will vest subject to the existing vesting conditions and the 2023 Long Term Incentive and Short Term Incentive cash awards payable to Mr Cole will not be paid early. Mr Cole did not vote on the board resolutions in relation to the above matters given his interest in the subject matter of those resolutions. OZ Minerals Shareholders should have regard to these interests when considering how to vote on the Scheme, including Mr Cole’s recommendation on the Scheme, which appears throughout the Scheme Booklet.
The OZ Minerals Board, and Mr Cole, consider that notwithstanding these arrangements, it is appropriate for Mr Cole to make a recommendation on the Scheme given Mr Cole’s role in the operation and management of OZ Minerals and that OZ Minerals Shareholders would wish to know Mr Cole’s views in relation to the Scheme.
TAXATION CONSIDERATIONS OF THE SCHEME
General information about the potential Australian tax consequences of the Scheme is set out in Section 10 of the Scheme Booklet. However, as that information is general in nature and as each OZ Minerals Shareholder’s circumstances will vary, each OZ Minerals Shareholder should obtain professional tax advice that is relevant to their particular circumstances. OZ Minerals Shareholders who are foreign residents should note in particular the potential application of the foreign resident capital gains withholding tax described in more detail in Section 10.