When the FTSE 100 multi-commodity miner Anglo American (LSE:AAL) first floated the proposal to acquire struggling polyhalite miner Sirius Minerals (LSE:SXX) at 5.5p a share, my analysis showed that the average investor would stand to lose 58% of the investment’s value.
SXX was unsuccessful in raising debt funding twice last year, leading it to undertake a strategic review. AAL’s initial offer appears to be the best outcome from this, as evidenced by the fact that a firm proposal has now been made at the same price.
This development further strengthens the chances that investors will indeed lose out on much of their SXX investments’ value. The way I see it, there’s just one key question for investors now – should they hold onto their Sirius Minerals shares or should they sell them? I’d say, hold tight. Here’s why.
It’s not over till it’s over
The proposal needs shareholder approval before the acquisition can go through. In its press release, Sirius Minerals chair Russell Scrimshaw makes a strong case in favour of the buyout pointing to the fact that after alternative routes were explored, AAL’s offer was the only viable option. And that there’s a “high probability” the company could go into administration if it isn’t accepted. That would result in a complete loss for many investors.
Shareholders still have a few weeks to make a decision, and if agreed to, the acquisition can come into effect by the end of March. It’s unlikely that shareholders will allow the company to fold. At the same time, as a Sirius Minerals shareholder myself, I’ve been actively following developments at the company and don’t know what surprise tomorrow might throw up. Until a few days ago, I didn’t know that Anglo American is about to make a bid for SXX.
Speculating on what comes next
Call it speculation, but I’m particularly keen to see what happens next after news reports said that AAL said it is “sensitive” to the fact that investors in SXX stand to lose money. Does it mean that it’s going to sweeten the deal? I don’t know. But I sure think it’s worthwhile to stick around and find out where this story is headed especially because there’s little for the investor to lose.
There’s no reason for the SXX share price to fall from its present level. And if the proposal goes through, which is most likely barring any other developments, then investors will receive 5.5p per share anyway.
It’s been a nail-biting saga for much of the past 12 months. And it might just be nearing its very end. We may as well wait and see where it goes before calling it quits now, of all times.
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Manika Premsingh owns shares of Sirius Minerals. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.