DealTalk: KGHM's bid for Quadra sets stage for a bidding war

Wed Dec 7, 2011 7:48am EST
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By Euan Rocha and Julie Gordon

TORONTO (Reuters) - KGHM's C$3 billion ($2.96 billion) bid for Quadra FNX is widely being viewed as a low-ball offer, and its proposal may well result in a full-blown bidding war for the Canadian miner, which controls one of the world's largest undeveloped copper projects.

Even though copper prices have pulled back in the wake of the euro zone debt crisis and economic uncertainty in other parts of the world, analysts believe a dearth in large-scale copper assets bodes well for the price of the metal.

Given the promising outlook for the red metal, Quadra's controlling stake in the $3 billion Sierra Gorda copper-molybdenum project in Chile could well draw some of the world's largest base metal miners into a bidding war.

Investors are already betting that the friendly bid by the Polish miner is far from a done deal. Quadra FNX closed at C$15.88 a share on Tuesday, well above the C$15-a-share offer price, signaling anticipation of a sweeter bid.

While Quadra has advised its shareholders to vote in favor of the KGHM offer, market sentiment suggests the two sides would struggle to attain the two-thirds majority required for the deal to proceed.

Stifel Nicolaus analyst George Topping believes large base metal miners such Antofagasta and Xstrata might want to take a close look at Quadra, especially given the geographic overlap that the companies share with Quadra in North and South America.

"We note that the break fee is only 2.1 percent, which is low, so we would expect the potential for other bidders," said Topping, who pegs Quadra's net asset value (NAV) at about C$20 a share.

"On a NAV basis, it's a low bid. ... At the very least, I think there will be a higher offer from KGHM to encourage Quadra shareholders," he added.   Continued...