PARIS/TORONTO- Steel giant ArcelorMittal upped its takeover bid for Baffinland Iron Mines yesterday, valuing the company at about C$550 million ($550 million) as it pursues its undeveloped iron ore deposit in Canada's Arctic. Baffinland shares rose 4.3 per cent to C$1.44, above ArcelorMittal's sweetened offer of C$1.40 a share, suggesting that some investors hope the bidding battle that began in September will continue. Rival Nunavut Iron, backed by private equity and a Canadian management team, is also offering C$1.40 a share, but for 60 per cent of the company.
ArcelorMittal has plenty of ammunition if the contest heats up, with cash and cash equivalents of $3.5 billion as of the end of September. One Baffinland investor said it would be difficult for Nunavut Iron-a company backed by US private equity firm Energy & Minerals Group and formed solely to bid for Baffinland-to increase its offer. "My gut reaction is that this probably is the end of the game. The sense has always been that Nunavut stretched very hard to get to their last bid. Where are they going to find more?" said the shareholder, who asked not to be named because he was not cleared by his firm to speak to the media. Nunavut Iron raised its offer for Baffinland earlier this week, challenging ArcelorMittal's friendly bid of C$1.25 a share for all of the shares.
Nunavut started the takeover battle in September, offering 80 Canadian cents a share. ArcelorMittal initially countered with an offer of C$1.10. Nunavut Iron Chairman Bruce Walter told Reuters the firm is now mulling its next move. "It would be fair to assume that what they've done was well within the expected range of responses from them, so we will be considering our options," he said in a phone interview. "We are going to see how the market reacts and talk to shareholders and see where everyone's views are, and go from there." Raymond James Equity Research analyst Tom Meyer urged clients to tender their shares to ArcelorMittal's offer. "We believe the nature (100 per cent control) of ArcelorMittal's proposal is superior," he said in a note.
"Continued ownership of BIM shares under (Nunavut Iron), in our opinion, will be subject to further share dilution, technical risk, project delays, capital cost inflation, etc." Huge iron ore deposit The takeover battle revolves around Baffinland's huge iron ore deposit on Baffin Island in the northern Canadian territory of Nunavut. The deposit is thought to be large enough to meet all of Europe's needs for many years, although developing the Mary River mine will be a major logistical and environmental challenge. For ArcelorMittal, which wants to be about 80 per cent self-sufficient in iron ore supply, a successful bid would mean more direct access to the key raw material-a significant issue given tight global supplies and healthy demand from Chinese steel mills.
That strong demand has meant that major producers such as BHP Billiton, Rio Tinto, and Vale have considerable clout in their negotiations with steelmakers. "ArcelorMittal's increased offer of C$1.40 per share provides demonstrably superior value and certainty for Baffinland shareholders, compared to Nunavut Iron Ore Acquisition Inc's revised coercive partial offer," Peter Kukielski, head of mining and a member of the group management board of ArcelorMittal, said in a statement.
"Our offer ensures shareholders receive 100 per cent cash for all of their shares, rather than cash for just some shares and diluted value for the shares not taken up under the Nunavut offer." But Nunavut Iron's Walter told Reuters his offer was a bet on the company's future and was of greater value to long-term holders of the stock. "There are a number of shareholders who have been buying into the company over the last two or three weeks, essentially taking out the short-term cash-oriented arbs and taking positions in the company with a longer term view," he said. "That again, we believe, works in our favour, because they are not going to be interested in cashing out at C$1.40. They'll be far more interested in working with us and realising much greater value by developing the project."