Shares in Arrium plunged after a foreign consortium claimed it would walk away from its bid to take over the iron ore and steel producer.
Shares in Arrium closed down 10 cents, or 12.7 per cent, at 68 cents.
The stock was fetching 85 cents mid-afternoon on Wednesday shortly after the consortium had lodged it's second, improved takeover offer.
The offer of 88 cents per share was rejected by the Arrium board on the grounds it "significantly" undervalued Arrium.
Independent analysts agreed, suggesting that a price "well above" $1.10 would be needed.
As part of the rejection, Arrium refused to even enter negotiations or due diligence with the consortium.
The refusal to allow due diligence "deeply disappointed" the consortium of Noble and Posco, which declared late yesterday it would no longer seek to engage with Arrium, while also dismissing the notion of a hostile bid direct to shareholders.
Investors seem to be taking the threat seriously this morning, dragging Arrium shares significantly lower.
The stock has not been this low since around the time of the original offer on October 1.
Buying the steelmaker, which changed its name in July from OneSteel to reflect its increasing focus on iron ore, would have given the consortium Asia's third-biggest steelmaker by output, a potential 9 million metric tonnes in annual supply of iron ore as well as access to as much as 13 million tonnes a year of port capacity in South Australia.
"In the absence of the offer, Arrium's share price should trade in line with our target price, which incorporates a discount given its debt position," Deustche Bank analysts Emily Behncke and John Hynd wrote in a research note dated yesterday. "We remain concerned about Arrium's debt position, its exposure to the volatile iron ore price," the Australian dollar exchange rate and likely asset/goodwill writedowns.
Arrium had net debt of $2.14 billion as of June 30, according to data compiled by Bloomberg.
It is "business as usual" for the company after the bid was terminated, Arrium's external spokesman, Tim Duncan, said yesterday. The 88 cents-a-share offer was "highly conditional" and involved "significant transaction risk" as the group needs to hold talks with Arrium's lenders, the company said in an earlier statement yesterday.
Iron ore accounted for more than half of Arrium's earnings before interest, tax, depreciation and amortization in the financial year ended June 30, data compiled by Bloomberg show. Arrium rejected the initial 75 cents a share bid on October 1. Since then, the steelmaking ingredient has gained 14 per cent to $119 a ton.
"They were probably right to reject both offers particularly the first low-ball one," Gavin Wendt, senior resource analyst at Mine Life in Sydney, said yesterday. "But this does place pressure on the company to deliver what they say they will and the share price is likely to reflect that."