Shareholders of Lundin Mining approved a takeover offer by HudBay Minerals on Monday, but the vote looks to be for naught as the market and analysts concluded the deal will collapse at the hands of HudBay's investors.
Shareholders of Lundin voted 99.7 percent in favor of the friendly all-stock takeover, which at Monday's prices valued Lundin at about C$710 million (US$582 million). Both Canadian companies mine copper and zinc, and prices of both metals have plunged amid the global economic slowdown.
The companies had hoped to close the takeover by Jan. 28, but an Ontario Securities Commission ruling last week that HudBay must allow its shareholders to vote on the plan has made it increasingly likely the deal won't go through.
HudBay's shares plunged about 40 percent after the takeover was announced in November, while some institutional stakeholders, including major shareholder SRM Global Master Fund, have voiced their opposition.
SRM and Corriente Master Fund have launched a proxy battle to replace HudBay's board, while 1.5 percent shareholder Jaguar Financial launched the OSC challenge that led to the ruling that HudBay must hold a shareholder meeting.
The OSC decision directs HudBay to allow its shareholders to vote on the 153 million shares it will issue to pay for Lundin, an amount that has become a bone of contention as it would double HudBay's issued shares.
MARKET SEES NO TAKEOVER
The offer values each Lundin share at 0.3919 of a HudBay share, or C$1.86 at Monday's prices. Lundin was up 3 Canadian cents at 95 Canadian cents, indicating the long odds the market has put on the takeover succeeding. HudBay was up 38 Canadian cents at C$4.75.
Analysts are also convinced the takeover will be scuttled. Desjardins Securities analyst John Hughes reiterated his C$5.90 12-month target for HudBay shares on Monday, saying in a note the deal has no real possibility of proceeding under the current structure.
UBS Securities raised its target on HudBay by 67 percent to C$7, cut Lundin by 42 percent to 90 Canadian cents and called the decision mauled, although it allowed that renegotiation was possible at a much lower price.
Speaking after the shareholder meeting, Lundin Chief Executive Phil Wright refused to comment on the OSC decision and said the company would make a decision on how to proceed in the coming days.
When I've had a chance to talk with counsel, talk with my board and talk to HudBay, I'll give some more thought to those issues, he told reporters.
While HudBay shareholders are clearly happy with the idea that the deal could die, the company's leadership may not survive the next few months.
HudBay has already complied with shareholder requests to hold a meeting in March to consider turfing the board, and SRM and Corriente were to appear in court on Monday to try to force HudBay to move the meeting up before the Lundin deal closes.
Opponents of the plan have painted it as a reverse takeover by cash-strapped Lundin, which wants access to HudBay's strong balance sheet, and whose shareholders would control about half the combined company.
HudBay has said the deal would strengthen its operations by adding Lundin's mostly Europe-based mines, and its 24.75 percent stake in the massive Tenke-Fungurume copper-cobalt deposit in the Democratic Republic of Congo.
In a separate release, Lundin said the Congo project would likely start producing copper cathode in the second quarter, and could hit full commercial production in the second half of 2009. The development's majority owner is U.S. miner Freeport-McMoRan . ($1=$1.22 Canadian) (Additional reporting by Ka Yan Ng; editing by Rob Wilson)
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