Market rumours that all was not well on the progress of the planned merger of Perilya Ltd (ASX: PER) and CBH Resources Ltd (ASX: CBH) were confirmed Tuesday by CBH which said that, after Perilya's ardour for the original deal, it had submitted a superior proposal but it was also rejected. 

Originally the parties had agreed to a merger based on three CBH shares for each Perilya share, and the updated offer was 3.5 CBH to one Perilya.

CBH's Managing Director Stephen Dennis (who was to become MD of the merged entity) said: The Perilya board has rejected CBH's offer on the basis that it is considered to be ‘inadequate' even though it is superior to the current merger terms that they have recommended. 

CBH finds this position astonishing and illogical, particularly given that they (Perilya) have declined to allow their own shareholders the opportunity to consider the revised proposal, nor did the Perilya board attempt to negotiate.

Dennis said Perilya had indicated it was not in a position to make a recommendation to its shareholders until it has fully understood the impact of material changes to CBH's Endeavour zinc-lead-silver-copper mine near Cobar in NSW and Rasp decline mine development on Central Mining Lease 7 in Broken Hill. 

CBH had announced on June 17 a series of cost reduction initiatives at Endeavour and Rasp that were designed to improve competitiveness and improve the sustainability of these operations in the face of lower metal prices.

Dennis said CBH rejects any suggestion that there are any adverse implications for these operations. Indeed it is surprising that Perilya is yet to respond to the recent decline in metal prices in respect of their own operations at Broken Hill. 

CBH said that Perilya's technical team had participated in an extensive joint review of the Broken Hill assets over six months ago, with the assistance of independent experts.

The sunset date for the deal is August 25 and Perilya said it would not agree to a new sunset date. 

The Merger Implementation Agreement (MIA) for the planned merger provided for an $A2 million ($US1.907 M) break fee, and CBH said that it would now be seeking this sum from Perilya.

When the MIA was released Perilya had said at the time that reasons for a merger included:

  • Unification of Broken Hill ownership for the first time in its history, to provide operational efficiencies and value creation.
  • Creation of a globally significant zinc and lead producer (it would have been ranked ninth in zinc and seventh in lead).
  • A quality portfolio of base metal assets at varying stages of development.
  • Increased equity market scale and ongoing liquidity. 

No mention was made Tuesday of the future of Kimberley Metals Ltd, the vehicle CBH was setting up as a spin-off float to continue development and exploration of assets that were not going into the planned merger - including Mineral Hill base metals (NSW), Sorby Hills copper-zinc-silver project (Western Australia) and 30% stake in the Constance Range iron ore project in Queensland.

One of the CBH projects that was to go into the merged vehicle is the now well-advanced Panorama lead-zinc-silver project in WA's Pilbara.