Echo Resources Limited (“Echo”) (ASX: EAR) and Northern Star Resources Limited (“Northern Star”) (ASX: NST) are pleased to announce that they have entered into a Bid Implementation Agreement (“BIA”), pursuant to which Northern Star will offer to acquire all of the issued and outstanding ordinary shares in Echo that it does not already own (each an “Echo Share” and together the “Echo Shares”) under the terms of an off-market takeover bid (the “Offer”).
Under the terms of the Offer, subject to satisfaction or waiver of certain conditions, each Echo Shareholder will receive a cash offer of A$0.33 for every Echo Share held (the “Offer Consideration”), which represents a significant premium to Echo’s recent share trading, specifically:
- 39.4% to Echo’s Volume Weighted Average Price (“VWAP”) of A$0.237 on 19 August 2019 (Echo’s last trading day on ASX before Echo was placed in trading halt);
- 42.1% to Echo’s 10-day VWAP of A$0.232 up to and including 19 August 2019;
- 49.7% to Echo’s 20-day VWAP of A$0.220 up to and including 19 August 2019; and
- 80.3% to Echo’s 60-day VWAP of A$0.183 up to and including 19 August 2019.
Furthermore, the Offer Consideration represents a 154% premium to the A$0.130 a share issue price of Echo’s most recent capital raising completed on 6 May 2019.
Northern Star is Echo’s largest Shareholder, with a relevant interest in approximately 21.7% of the issued and outstanding ordinary shares in Echo as at the date of this announcement.
The Offer implies a fully diluted equity value for Echo of approximately A$242.6 million. In order to acquire the Echo Shares it does not already own, up to A$193.0 million will be payable by Northern Star (the “Offer Amount”). As at 30 June 2019, Northern Star had cash and equivalents of A$361.0 million and an undrawn debt facility of A$200.0 million, which is well in excess of the Offer Amount and related transaction expenses.
Echo Board Recommendations
Those Directors of Echo independent of Northern Star, comprising Mr Victor Rajasooriar (Managing Director and Chief Executive Officer), Dr Alistair Cowden (Non-Executive Chairman), Mr Mark Hanlon (Non-Executive Director) and Mr Anthony McIntosh (Non-Executive Director) (“Independent Directors”) have carefully considered the terms and conditions of the Offer and, in consultation with Echo’s financial and legal advisers, have unanimously recommended that Echo Shareholders accept the Offer in the absence of a Superior Proposal. Echo’s Independent Directors have confirmed their present intention to, in the absence of a Superior Proposal, accept the Offer in respect of all Echo Shares they own or control which represent approximately 1.7% of the issued and outstanding ordinary shares in Echo.
Mr Alan Thom, who is a principal of Northern Star and nominee of Northern Star on the Echo Board, has abstained from making a recommendation in relation to the Offer.
Victor Rajasooriar, Managing Director and Chief Executive Officer of Echo, said:
“The Offer reflects the strategic nature of Echo’s Yandal Gold Project which has a unique combination of mineralisation, untested exploration upside, established processing infrastructure at Bronzewing and a detailed Feasibility Study.”
“The Board of Echo is pleased to recommend the Offer to Echo Shareholders in the absence of a Superior Proposal, and we look forward to working with Northern Star to implement the transaction.”
Overview of Echo – the Yandal Gold Project
Echo Resources is an exploration and development Company focused on the Yandal Gold Project, which comprises over 1,600km² of contiguous tenements in the Yandal greenstone gold belt in Western Australia, collectively known as the Yandal Gold Project (“Yandal Gold Project”). The tenements are located approximately 400 kilometres north of Kalgoorlie in Western Australia’s northern goldfields and include the ~1.8 million tonne per annum Bronzewing processing plant and associated infrastructure.
Refer to Echo's announcements for further information.
Northern Star’s Strategic Rationale
The acquisition of Echo will allow Northern Star to consolidate the mineralisation at the Yandal Gold Project for further evaluation on both an exploration and development basis. The acquisition of Echo will also provide Northern Star with the ability to process gold at the Bronzewing processing plant, if an evaluation of a restart is successful.
Key benefits for Echo Shareholders
- Certain and immediate value for Echo Shareholders – Given the Offer Consideration comprises 100% cash, Echo Shareholders will receive a certain, immediate and attractive value for their Echo Shares. By accepting the Offer, Echo Shareholders will receive a cash payment of A$0.33 for every Echo Share held within seven business days of the later of the date that Echo Shareholders accept the Offer and the date that the Offer becomes unconditional. Furthermore, Echo Shareholders will not incur any brokerage fees, which will likely be incurred if Echo Shareholders sold their Echo Shares on market.
- Attractive and significant premium – The Offer represents an attractive and significant premium to recent trading levels of Echo Shares.
- Avoidance of future funding and associated dilution risk – The Yandal Gold Project will likely require additional financing in the medium term to fund future exploration and project development activities. To the extent that some or all of this additional funding is sought in the form of equity, if Echo Shareholders do not accept the Offer, Echo Shareholders would need to contribute commensurately with their existing shareholding to avoid having their proportionate interest in Echo diluted.
- Avoidance of inherent risks – Echo Shareholders who accept the Offer will no longer be exposed to a variety of risks including, among others, project development and operational risks, regulatory, equity market and economic risks inherent in their shareholding
Bid Implementation Agreement
Under the BIA, Northern Star and Echo have given undertakings to each other to facilitate the Offer.
The Offer is subject to a limited number of conditions, the full list of which is set out in Part 3 of Schedule 2 of the BIA, including:
- 90% minimum acceptance by Echo Shareholders (on a fully diluted basis);
- All applicable approvals being obtained and no materially adverse regulatory action restraining, prohibiting or impeding the Offer;
- No material acquisitions or disposals in relation to Echo;
- No adverse exercise of third party rights in relation to Echo;
- No breach of warranties or representations by Echo contained in the BIA; and
- No prescribed occurrence in relation to Echo.
The BIA contains customary deal protection mechanisms including “no shop”, “no talk” and “no due diligence” restrictions, as well as notification and matching rights in the event of a competing proposal. A break fee of A$1 million may also be payable by Echo to Northern Star in certain circumstances set out in the BIA.
The Offer will extend to all Echo Shares including those issued as a result of the exercise of options or vested performance rights during the Offer period. Separate offers are being made for certain options, on equivalent terms to the Offer.
Timetable and next steps
Detailed information relating to the Offer will be set out in the Bidder’s Statement and Target’s Statement, which are expected to be dispatched to Echo Shareholders in mid-September 2019.
Northern Star’s financial adviser is Canaccord Genuity (Australia) Limited and its legal adviser is Gilbert + Tobin.
Echo’s financial adviser is Sternship Advisers and its legal adviser is DLA Piper.