First Quantum Hostile Inmet Bid Has Low Odds

First Quantum Minerals Ltd. (FM)’s C$5.1 billion ($5.2 billion) hostile bid for Inmet Mining Corp. (IMN) will probably fail, based on the track record of Canadian deals over the past 12 years.

Canadian companies have been targeted in 48 hostile deals valued at at least $100 million since 2000, according to data compiled by Bloomberg. Twenty-nine, or 60 percent, failed, including BHP Billiton Ltd. (BHP)’s $40 billion bid for Potash Corp. of Saskatchewan Inc. in 2010 and Equinox Minerals Ltd.’s $4.8 billion pursuit of Lundin Mining Corp. (LUN) in 2011.

Unsolicited deals have been unsuccessful due to political influence, such as Saskatchewan’s opposition to BHP’s bid for Potash Corp., and resistance from boards that argue their firm is worth more. Often “white knights” emerge with higher offers, such as Rio Tinto Plc (RIO)’s $38.1 billion friendly deal for Alcan Inc., which trumped Alcoa Inc. (AA)’s hostile bid in 2007.

“It’s more likely than not when a hostile bidder launches a bid that it’s not going to be the successful party,” John Emanoilidis, a partner at Torys LLP and co-head of the Toronto- based law firm’s M&A practice, said in a phone interview. Torys represents Inmet. “The odds would be against a hostile bidder.”

When a hostile bid is announced, the typical outcome is that a change of ownership occurs though not necessarily with the hostile bidder that initiated the process, he said. “If we were going to apply the statistics to future hostile takeovers, the hostile bidder may be disappointed.” Emanoilidis said.

‘Carefully Evaluate’

Hostile deals represent a fraction of the 1,686 completed or scrapped acquisitions in Canada during the 12-year period. Hostile Canadian deals have a better chance of success than in the U.S., where 102 of 156 hostile deals, or 65 percent, failed since 2000.

First Quantum, which produces copper in Africa, said it expects to get the required two-thirds support of Inmet’s investors.

“We are confident, as confident as you can be, to get the required support of the shareholders,” Clive Newall, president of Vancouver-based First Quantum, said yesterday in an interview in London.

The Inmet board “will carefully evaluate” the terms of the unsolicited C$72-a-share bid, Chairman David Beatty said in a statement. Inmet, developing the Cobre Panama project, fell 0.5 percent to C$71.92 at 4 p.m. in Toronto. The stock has risen about 36 percent since the Toronto-based company announced First Quantum’s approaches.

Spokesmen for Inmet and First Quantum declined to comment on the likelihood that the bid will succeed based on historic data.

Placer Deal

First Quantum is trying to follow other hostile deals that got done in Canada. Barrick Gold Corp. (ABX) succeeded in buying Vancouver-based Placer Dome Inc. for $10.2 billion in 2006 after investors supported the hostile bid. A C$3.73 billion takeover of TMX Group Inc., owner of the Toronto Stock Exchange, by banks and pension funds cleared last year. The offer started out in 2011 as an unsolicited bid to challenge TMX’s friendly combination with London Stock Exchange Group Plc.

“A hostile bidder can win if they’re prepared to put the full value on the table,” Simon Romano, partner at law firm Stikeman Elliott LLP in Toronto, said in a phone interview. “Most of the companies who lost their bid lost because they didn’t pay the full price.”

Romano said Inmet should be a “manageable” transaction because it isn’t being courted by a state-owned enterprise and it isn’t a large company protected by law such as Potash Corp. “I would think that if you could readily pay the price, a bidder could take out a company like Inmet.”

Rona Battle

A failure to do a deal can prompt investor demands for change, such as the case at home-improvement retailer Rona Inc. last year. Rona’s board on Nov. 9 ousted former Chief Executive Officer Robert Dutton, who was at the company’s helm when it rejected an offer from Lowe’s Cos, the second-biggest U.S. home- improvement chain.

Invesco Canada Ltd., the second-largest investor of the Boucherville, Quebec-based company, sought to replace the board after the takeover was rebuffed. Lowe’s offered C$14.50 a share for Rona in July. Rona rose 0.1 percent to C$10.64 in Toronto trading.

Investment bankers expect mergers prompted by shareholders to increase this year following activist campaigns last year at Canadian Pacific (CP) Railway Ltd. and Agrium Inc. (AGU)

Less Vocal

“You see a group of shareholders out there in the Canadian market that are prepared to be more vocal in their perspective on shareholder value,” said Patrick Meneley, vice-chairman of investment banking at Toronto-Dominion Bank (TD)’s TD Securities unit. “Our job is to work with clients to see a path clear to optimizing shareholder value. That will continue; there’s no doubt about that.”

Investors in Canadian companies have been less vocal than their U.S. counterparts in encouraging change. Jana Partners, the New York-based hedge fund, began pressing Agrium of Calgary to spin off its farm-supply retail network from its core fertilizer business. And hedge-fund manager William Ackman was successful in his proxy fight last year to name a new CEO at Canadian Pacific, to shake up was once North America’s least- efficient railroad.

“There are times when the market is not recognizing a company’s fully intrinsic value, that we present solutions, ideas, thoughts and execution to remedy that,” Meneley said.

Shareholders may focus on making changes within the mining and industrial sectors, said Daniel Barclay, managing director of mergers and acquisitions at Bank of Montreal’s BMO Capital Markets.

“It’s anything where we have a valuation gap,” Barclay said in an interview last month. “So you could see a bunch in the general industrials. That’s just shareholders seeing big gaps if they did the business model quite differently.”

To contact the reporters on this story: Sean B. Pasternak in Toronto at spasternak@bloomberg.net; Doug Alexander in Toronto at dalexander3@bloomberg.net; Katia Dmitrieva in Toronto at edmitrieva1@bloomberg.net

To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net; David Scheer at dscheer@bloomberg.net

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