By Pav Jordan and Julie Gordon
TORONTO, Jan 6 (Reuters) - Nunavut Iron Ore may have to sweeten its bid for Baffinland again to persuade shareholders to accept its offer instead of ArcelorMittal's , a possibility that Nunavut has not ruled out.
The two companies have fought for control of Baffinland since September, trading offers for the Canadian iron ore explorer that had nearly doubled by year's end.
Nunavut's current offer values Baffinland at C$570 million ($570 million). Though it's not a large deal by global standards, it illustrates how competition for raw materials has spread to even the most remote corners of the world.
At stake is the Mary River project, a vast, high-grade iron ore deposit located in the Canadian Arctic. Experts say it has enough ore to meet all of Europe's needs for years, but developing the mine will present major logistical and environmental challenges.
The bids are similar in price on a per-share basis but differ in other respects.
Nunavut, backed by private equity, is offering C$1.45 a share for 60 percent of the company, with a promise of partial shares of the new company in the form of warrants.
Luxembourg-based ArcelorMittal, the deep-pocketed leader in world steel production, is offering C$1.40 a share for 100 percent of Baffinland, valuing it at C$550 million. It has said it will not raise the offer any further.
Even though the total price tag is lower, the Arcelor offer is not necessarily less attractive, analysts say.
'You have to offer perhaps a 20 cent premium for an offer that is only for 60 percent of the company over an offer that's for 100 percent of the company,' said Peter Campbell, senior mining analyst at Jennings Capital in Toronto.
'You do need a significant premium when you're only bidding for control as opposed to the entire thing.'
Indeed, Nunavut's chairman would not rule out a sweeter bid on Thursday even though he said there were signs that investors prefer Nunavut's offer to Arcelor's.
'We're hearing from lots of players in the market that they prefer our bid to what Arcelor has on the table, so I don't believe we are compelled to do so,' Nunavut Chairman Bruce Walter told Reuters in an interview.
'Whether to improve our odds we choose to do so is something that we will be considering.'
Bankers say that differentiating between the two offers is not as obvious as the 5 Canadian cents that separate them on a per-share basis.
'If they were the same at C$1.40 a share, the choice would be obviously to tender to Arcelor,' said one banker with knowledge of the offers. 'But if the right amount tender to Nunavut, then they could receive C$1.45 a share.'
The issue is further complicated because holders of 25 percent of the shares are in lock-up agreements with Arcelor, and 10 percent of shares are already in Nunavut's hands.
'Shareholders are having a hard time ascertaining exactly which one to tender into still,' said another banker.
To add to the drama Nunavut said on Thursday it would file amendments to its bid that would require a 10-day extension beyond a Jan. 10 deadline. At issue are regulatory concerns about a warrant sweetener that is currently more a promise than a solid component of the bid.
'From the point in time at which we file that notice of variation, our offer would then be open for 10 days,' said Walter, a veteran Canadian dealmaker who formed Nunavut for the sole purpose of launching the hostile takeover of Baffinland.
When asked if Arcelor would extend its Jan. 10 deadline in response to Nunavut's latest move, the steelmaker declined comment.
'Baffinland shareholders now have a clear choice - to tender to the all cash C$1.40 per share offer by ArcelorMittal for 100 per cent of the Common Shares before 11:59 p.m. (Toronto time) on January 10, 2011, or risk the uncertainty of Nunavut's coercive partial offer,' the company said in a statement posted to its website late in the day.
CHINA FACTOR
A third bid could also still emerge, according to former Baffinland Chief Executive Gordon McCreary - who still owns about 2.3 million shares. He plans to go to China next week to try to put together a solid offer from a still-unnamed Chinese entity.
'The value of the asset is far, far, far in excess of any of the numbers that have been bantered around at this time,' McCreary said. 'But the reality is it's worth what somebody will pay for it.'
McCreary said his unnamed bidder would not only offer a higher price, but also allow Baffinland shareholders to benefit from the development of the massive iron ore project.
'The Chinese are interested in controlling assets, not necessarily that they would have to own 100 percent of them,' he said.
China produced 900 million tonnes of iron ore in 2009, making it the world's top producer. The Asian nation also imports close to 600 million tonnes of iron ore each year, according to McCreary.
The Mary River project, situated 3,000 kilometers (1,864 miles) north of Toronto, could produce up to 18 million tonnes of iron ore a year, but may cost up to $4 billion to develop.
Such a gamble has become more attractive as breakneck growth in countries like China and India drives demand for steel.
In response, ArcelorMittal and other producers are trying to gain more control over supplies of the raw materials of steelmaking, and are scouring the globe for available deposits.
Shares of Baffinland were among the most active on the Toronto Stock Exchange on Thursday. The stock closed down 1 Canadian cent, or 0.69 percent, at C$1.43 per share.
($1=$1.00 Canadian)
(Reporting by Julie Gordon and Pav Jordan; editing by Peter Galloway and Frank McGurty) Keywords: BAFFINLAND/ (jeffrey.hodgson@thomsonreuters.com; 416 941 8099; Reuters Messaging: jeffrey.hodgson.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2011. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
TORONTO, Jan 6 (Reuters) - Nunavut Iron Ore may have to sweeten its bid for Baffinland again to persuade shareholders to accept its offer instead of ArcelorMittal's , a possibility that Nunavut has not ruled out.
The two companies have fought for control of Baffinland since September, trading offers for the Canadian iron ore explorer that had nearly doubled by year's end.
Nunavut's current offer values Baffinland at C$570 million ($570 million). Though it's not a large deal by global standards, it illustrates how competition for raw materials has spread to even the most remote corners of the world.
At stake is the Mary River project, a vast, high-grade iron ore deposit located in the Canadian Arctic. Experts say it has enough ore to meet all of Europe's needs for years, but developing the mine will present major logistical and environmental challenges.
The bids are similar in price on a per-share basis but differ in other respects.
Nunavut, backed by private equity, is offering C$1.45 a share for 60 percent of the company, with a promise of partial shares of the new company in the form of warrants.
Luxembourg-based ArcelorMittal, the deep-pocketed leader in world steel production, is offering C$1.40 a share for 100 percent of Baffinland, valuing it at C$550 million. It has said it will not raise the offer any further.
Even though the total price tag is lower, the Arcelor offer is not necessarily less attractive, analysts say.
'You have to offer perhaps a 20 cent premium for an offer that is only for 60 percent of the company over an offer that's for 100 percent of the company,' said Peter Campbell, senior mining analyst at Jennings Capital in Toronto.
'You do need a significant premium when you're only bidding for control as opposed to the entire thing.'
Indeed, Nunavut's chairman would not rule out a sweeter bid on Thursday even though he said there were signs that investors prefer Nunavut's offer to Arcelor's.
'We're hearing from lots of players in the market that they prefer our bid to what Arcelor has on the table, so I don't believe we are compelled to do so,' Nunavut Chairman Bruce Walter told Reuters in an interview.
'Whether to improve our odds we choose to do so is something that we will be considering.'
Bankers say that differentiating between the two offers is not as obvious as the 5 Canadian cents that separate them on a per-share basis.
'If they were the same at C$1.40 a share, the choice would be obviously to tender to Arcelor,' said one banker with knowledge of the offers. 'But if the right amount tender to Nunavut, then they could receive C$1.45 a share.'
The issue is further complicated because holders of 25 percent of the shares are in lock-up agreements with Arcelor, and 10 percent of shares are already in Nunavut's hands.
'Shareholders are having a hard time ascertaining exactly which one to tender into still,' said another banker.
To add to the drama Nunavut said on Thursday it would file amendments to its bid that would require a 10-day extension beyond a Jan. 10 deadline. At issue are regulatory concerns about a warrant sweetener that is currently more a promise than a solid component of the bid.
'From the point in time at which we file that notice of variation, our offer would then be open for 10 days,' said Walter, a veteran Canadian dealmaker who formed Nunavut for the sole purpose of launching the hostile takeover of Baffinland.
When asked if Arcelor would extend its Jan. 10 deadline in response to Nunavut's latest move, the steelmaker declined comment.
'Baffinland shareholders now have a clear choice - to tender to the all cash C$1.40 per share offer by ArcelorMittal for 100 per cent of the Common Shares before 11:59 p.m. (Toronto time) on January 10, 2011, or risk the uncertainty of Nunavut's coercive partial offer,' the company said in a statement posted to its website late in the day.
CHINA FACTOR
A third bid could also still emerge, according to former Baffinland Chief Executive Gordon McCreary - who still owns about 2.3 million shares. He plans to go to China next week to try to put together a solid offer from a still-unnamed Chinese entity.
'The value of the asset is far, far, far in excess of any of the numbers that have been bantered around at this time,' McCreary said. 'But the reality is it's worth what somebody will pay for it.'
McCreary said his unnamed bidder would not only offer a higher price, but also allow Baffinland shareholders to benefit from the development of the massive iron ore project.
'The Chinese are interested in controlling assets, not necessarily that they would have to own 100 percent of them,' he said.
China produced 900 million tonnes of iron ore in 2009, making it the world's top producer. The Asian nation also imports close to 600 million tonnes of iron ore each year, according to McCreary.
The Mary River project, situated 3,000 kilometers (1,864 miles) north of Toronto, could produce up to 18 million tonnes of iron ore a year, but may cost up to $4 billion to develop.
Such a gamble has become more attractive as breakneck growth in countries like China and India drives demand for steel.
In response, ArcelorMittal and other producers are trying to gain more control over supplies of the raw materials of steelmaking, and are scouring the globe for available deposits.
Shares of Baffinland were among the most active on the Toronto Stock Exchange on Thursday. The stock closed down 1 Canadian cent, or 0.69 percent, at C$1.43 per share.
($1=$1.00 Canadian)
(Reporting by Julie Gordon and Pav Jordan; editing by Peter Galloway and Frank McGurty) Keywords: BAFFINLAND/ (jeffrey.hodgson@thomsonreuters.com; 416 941 8099; Reuters Messaging: jeffrey.hodgson.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2011. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.