Mining Fuels Second-Best Start for Canada Takeovers

Cliffs Natural Resources Inc. and Inmet Mining Corp. pushed Canada to its second-best start for takeovers in at least a dozen years.

Canadian companies were involved in $16.4 billion in announced mergers and acquisitions in January, second only to the $21.2 billion raised in the same month in 2007, according to data compiled by Bloomberg. There were 149 deals last month, with an average disclosed price of at least $195.1 million and an average premium of 14 percent.

“We are off to a strong start and frankly we don’t see things slowing down anytime soon,” Andre Hidi, head of global mergers and acquisitions at BMO Capital Markets in Toronto, said yesterday in an interview. “I can’t think of a time we’ve been busier.”

Hidi says this year may surpass 2010, both in terms of value and number of transactions.

“I expect this year to be at least as busy, and probably busier than last year,” said Hidi, 50.

Canada’s largest transaction last month was Cliffs’ $4.48 billion agreement to buy Montreal-based Consolidated Thompson Iron Mines Ltd. Cliffs, North America’s largest iron-ore producer, announced the offer on Jan. 11. The second-largest transaction came a day later, when Inmet agreed to buy Lundin Mining Corp. for $4.15 billion.

“We expect mining to continue to be extremely active, both in the precious-metals and base-metals subsectors,” said Hidi, whose firm, a unit of Bank of Montreal, advised Consolidated Thompson. “I expect to see a broadening of activity to a number of other sectors including financial institutions, consumer industrial companies and energy as well.”

Diversity of Deals

The third-biggest deal in Canada in January was Minneapolis-based Target Corp.’s $1.85 billion agreement to buy as many as 220 Zellers store leases from Hudson’s Bay Co. Toronto-based Brookfield Asset Management Inc. agreed to buy a stake in General Growth Properties Inc. from Fairholme Capital Management LLC in a transaction valued at about $1.7 billion.

The amount of the takeover offers in January was more than double the value a year earlier, when Canadian companies were involved in 165 transactions worth at least $6.76 billion. For all of 2010, Canadian firms announced 2,091 deals valued at $198.3 billion, the most since the record $332.4 billion in 2007, according to Bloomberg data. Figures are current as of today and are subject to change as more deals are recorded.

‘Strong M&A’

“What we’re seeing is a continuation in January of a very strong M&A market that we had in the latter half of last year,” said Mike Boyd, head of mergers and acquisitions at CIBC World Markets, which advised Inmet.

Transactions are being fueled by a recovery of equity markets since the global recession, rising corporate confidence and low interest rates that keep costs for financing takeovers low, Boyd said in an interview.

Resource-rich Canada is also faring well because of rising commodity prices, he said.

Gold prices in New York have gained for 10 straight years and reached a record of $1,432.50 an ounce on Dec. 7, while copper has surged more than 40 percent in the past 12 months, today hitting a record of about $4.51 a pound. Prices have also increased for crude oil, iron ore, potash and metallurgical coal.

“Resources are still very much in demand in the developing world and in focus for investors,” BMO’s Hidi said. “That bodes well for activity for the rest of the year.”

‘Outstanding Year’

PricewaterhouseCoopers LLP says 2011 will be an “outstanding year” for Canadian acquisitions. Global public companies have more than $3 trillion in cash reserves, and private-equity firms have $500 billion, the accounting firm said in a Jan. 20 report.

“We are going to see a very strong market for deals,” Kristian Knibutat, national deals leader at PricewaterhouseCoopers in Toronto, said in a telephone interview. “You’ve got money, the ability to borrow and you’ve got the desire.”

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