By Yuan Zhaohui
Published: 2008-06-05

From page 25, Corporation, issue no. 370, June 2, 2008
Translated by Zuo Maohong
Original article: [Chinese]

China's Sinosteel Corporation and Australian's Murchison Metals' contest over the control of iron ore miner Midwest has entered its final countdown, and adding to the international nature of this bid is apparently a Malaysian factor.

Sinosteel has stated its last offer of 6.38 Australian dollar (AUD) per share in cash, valid until June 13; while Murchison has presented a merger proposal, valuing Midwest shares at 7.17 AUD.

While both waited expectantly for the final nod from Australia-based Midwest, a key person said to have major influence over the outcome is Malaysia-born David Law Tien Seng, the main broker in the Midwest bid.

Law, a Malaysian Chinese, is Midwest's non-executive deputy chairman and a major shareholder of the company. He is also the chairman of Sinosteel Midwest Management Pt. Ltd.

He holds 13.4% of Midwest shares but purportedly has influence over 40% of the board's voting right.

For SinoSteel, the takeover attempt of Midwest was basically negotiations with stakeholders led by Law. According to a source involved in these talks, the price Law asked for was 7AUD per share, while he himself had bought his stake at 0.2 AUD per share.

For SinoSteel, however, 6.38 AUD per share would be the ceiling price offer.

Open information suggested that Law has built an image that at times appeared to be having contradictory personas.

He has been referred as one of the richest men in Malaysia, a successful businessman, a briber, and a philanthropist, amongst others. During the complex Sinosteel-Midwest negotiations, he has been known for his shrewd and tactful maneuvers.    
The Rule of Law Tien Seng
Though having gained the Midwest shares at a fairly low price, Law would be taxed exorbitantly if the company was bought over by SinoSteel, said an in-circle source. In Australia, a capital gains tax is levied on profits made on the disposal of any asset.

One of the achievements of Law was that within five years, he turned a company valued at seven million AUD into a 1.3 billion AUD bid target.

The surge in iron ore prices a few years ago benefited Midwest, which launched a five million AUD initial public offering (IPO) with its assets in Kingstream and support from Terrain Capital.

Having a good relationship with Terrain Capital, Law obtained 17.8% of the shares at 0.2 AUD per share with 1.9 million AUD, which was paid through his offshore company Armadale.

In return, Law brought in approximately one million AUD capitals for Midwest, including those from Dawn Star Ventures Limited of Malaysia, which controlled 8.7% of its stakes. In the second week following the market-listing, two Malaysians, Ching Kion Lee and Jyn Sim Baker, entered the board of directors as delegates of Law.

Many who had come into contact with Law were impressed by his unconventional business strategy. "Law has been trying to control the board without a buy-over," said a source from Midwest.

Back home, Law used to be the vice-chairman of the Malaysian Table Tennis Association. A self-professed philanthropist, he was once accused of bribing a Malaysian official but was soon released without being charged. With bodyguards around him wherever he goes now, Law was once also the target of a kidnapping.

Later, Law left Malaysia and devoted himself to the mining trade. Shareholders in Midwest were said to rely on Law greatly, mainly due to his fluency in Chinese, strong networking, keen interest and sharp business sense about the iron industry.

Counter Attack from Murchison Metals
If not for the counter offer from Murchison Metal, SinoSteel could have known the answer by June 5. The latter had raised the offer from 5.6 AUD to 6.38 AUD on April 29, and the Midwest board of directors had suggested to shareholders to accept the offer and sell their shares on June 5.

However, Murchison Metals came up with a new merger proposal on May 26, offering one share and an option on issue for every 0.575 Midwest shares, making the share value jump to 7.17 AUD and outshining SinoSteel's offer.

Meanwhile, Murchison Metals had also raised its voting shares in Midwest from 4.78% to 9.98%. If this share was increased to 10%, the company would be capable of preventing SinoSteel from a hostile take over of the entire stakes of Midwest.

There could always be a surprise decision from the Midwest Board dominated by Law--It decided to recommend both the plans from Murchison Metal and SinoSteel to shareholders.

According to the previous agreement by SinoSteel, the 6.38 AUD offer would be valid under the condition that SinoSteel shall obtain 50.1% shares of Midwest. With 19.89% shares already in hand, SinoSteel would only need another 30.21% to achieve its goal.

As its opponent presented a counter offer, however, SinoSteel too changed its tone, saying that the 6.38AUD offer would be unconditional.

According to a SinoSteel report, the success rate of the Murchison Metals plan would be low because it would take at least three months for the shareholders to reach an agreement on it. In an uncertain situation, Midwest shareholders would most probably support the SinoSteel plan, said its president Huang Tianwen.

Apart from the 19.89% shares of Midwest, SinoSteel also holds 2.4% shares of Murchison Metals.

Now, everything seemed to be heading in the direction that Law had expected. He had asked for 7AUD per share, and after the Murchison Metals' merger proposal came to light, the stock prices of Midwest have been hovering around 7AUD as he wished.

SinoSteel's Options
SinoSteel apparently wanted Midwest badly; it was more than just an investment, considered from a global resources perspective, it is one of few places in the world could still offer new sources of iron ore.

The takeover could help Sinosteel gain entry into the mine-rich Western Australia, where the mining industry is currently dominated by BHP Billiton and Rio Tinto.

However, price remained the biggest problem. Either SinoSteel or a third company interested in Midwest would have to sacrifice considerably to hinder Murchison Metals in its merger proposal.

Midwest CEO Bryan Oliver said Midwest welcomed SinoSteel, but it had to pay the price the former had demanded, whether in buying iron ore or the company.

However, SinoSteel wouldn't give up easily, said Stephen Gorenstein, analyst at Goldman Sachs. "It has several options. It could either raise the offer price or look on and wait to buy out the merged company later," he said.

After a merger, two mining companies could share basic utilities such as railway and ports, and save cost by integrating similar projects.

The core question was whether Law would choose to cash out at a high price, said an insider, adding that if he needed cash, the current high price would be a good chance for him.

"For SinoSteel's part, it's impossible to give a higher price, but shareholders of Midwest think differently. What they pursue is to maximize personal interest.

"Now that SinoSteel is on the bright side, and they are in the dark, nobody could really tell who has sold out the shares immediately," this insider said.