Reading the recent strenuous DIO board anti-AVO bid...

Reading the recent strenuous DIO board anti-AVO bid pronouncements now is likely to provide some retrospective amusement. Also, weren't some of the KPMG 'valuation' details questioned by ASIC, so why would anyone take the valuation too seriously?

From The Australian, July 10th:

"Watchdog snaps at KPMG heels over Avoca report

Bryan Frith | July 10, 2009
Article from: The Australian

BEMUSED shareholders of the gold miner Dioro Resources must be wondering what, if any, credence to place on the independent expert's report by KPMG in relation to the bid from Avoca Resources following the latest intervention by the corporate regulator, ASIC.

Avoca launched a scrip bid for Dioro two months ago, offering 1 Avoca share for each 2.82 Dioro share which, at Avoca's then-share price of $1.495 valued Dioro shares at 53c -- a premium of 40 per cent to Dioro's pre-bid price of 39.5c.

On May 28, Dioro released the target's statement and the directors recommended rejection of the offer, claiming that significantly undervalued Dioro shares and pointed to a KPMG's conclusion that the offer was not fair and reasonable, and its valuation of $1.40 to $2.28 a share, with a preferred value of $1.88.

They also held out the possibility of a rival offer. KPMG's valuation was 3.5 times to 5.8 times Dioro's pre-bid price and was clearly not representative of the market's view of Dioro. Avoca went on the attack. "Even the Dioro directors themselves must have difficulty believing the KPMG valuation is the fair market valuation of a Dioro share", the company said.

ASIC stepped in and forced the issue of two supplementary target's statements -- one relating to KPMG and the other in relation to an independent technical specialist's report by Coffey Mining.

In the expert's report, KPMG said it was reasonable to expect that Avoca's market capitalisation would increase, perhaps significantly, if it secured 100 per cent of Dioro, but did not elaborate. At ASIC's behest KPMG included some "hypothetical" calculations, which estimated a potential indicative price range of $1.96 to $2.22 a share, with a preferred value of $2.10.

ASIC also required Coffey to quantify its value of Dioro's South Kalgoorlie assets. It came out at $62 million, equivalent to almost 70c a Dioro share.

On Monday, Avoca improved its offer terms to 1 of its shares for each 2.4 Dioro shares which, at Avoca's then-share price valued the offer at 75c a Dioro, but at yesterday's close of $1.57 for Avoca shares, values Dioro shares at 65c.

ASIC has now instructed KPMG to elaborate on aspects of its report, which has resulted in a third supplementary target's statement. KPMG has now pointed out that its "assessed fair values" of $1.40 to $2.28 a share represents a premium of 24-54 per cent to 477 per cent to Dioro's pre-bid portfolio trading price and that it approximately 10 times the range of pre-bid control premiums "typically observed in Australia".

Moreover, at 75c a share the improved Avoca represented a pre-bid premium of 89 per cent and that also exceeded the typical control premium in Australia.

And while the Dioro board continued to refer to the possibility of a rival board KPG noted that none had emerged to date.

The KPMG report was prepared by Jason Hughes and Duncan Calder, of the firm's Perth Office. It's worth noting that during last year's contested bid for Incremental Petroleum the same pair had three shots at valuing the target company. Their initial valuation in October was a range of $3.39 to $4.18 a share, which assumed an oil price of $US120 a barrel when the spot price was around $US80 a barrel.

In November, they reduced the valuation to a range of $2.41 to $3.05 a share, with a preferred value of $2.73 and in December lowered it again, to a range of $2.14 to $2.70 a share, with a best estimate of $2.42. The final bid price recommended by the Incremental directors was $1.085 a share. And last October the same duo assessed as fair and reasonable a restructuring plan by Great Southern , which would see direct project investors in plantations and cattle projects swap their interests for Great Southern shares.

The KPMG recommended that the investors should accept the offer and that's what happened. In May Great Southern went into administration and its shares are now worthless."