January 14, 2011 / 12:06 AM / 7 years ago

Rivals unite in Baffinland bid but chairman opposes

4 Min Read

TORONTO/BRUSSELS (Reuters) - Rival bidders for Baffinland Iron Mines have united in a C$590 million ($595 million) joint takeover offer, but the iron ore explorer's chairman said he opposes the deal.

ArcelorMittal, the world's largest steelmaker, and Nunavut Iron, backed by U.S. private equity, on Friday made a joint C$1.50-a-share offer for 100 percent of Baffinland, ending their four-month battle for the company's huge Arctic iron ore deposit.

Baffinland shares rose nearly 3 percent to C$1.56, suggesting shareholders may not tender to the C$1.50 price.

Under the agreement, ArcelorMittal will buy all outstanding shares of Baffinland, but will end up owning 70 percent. Nunavut's ownership, currently about 10.3 percent, will nearly triple to 30 percent.

"The respective parties were killing themselves without end-game in sight, and so both parties very much wanted the asset, and this is a splitting of the spoils so to speak," said a source with direct knowledge of the offers.

The battle for Baffinland's Mary River project has underscored the global race for resources as China, India and other emerging countries build roads, bridges and housing to meet the needs of their growing and more affluent populations.

Mary River, on remote Baffin Island in the Canadian Arctic, will produce enough high-grade iron ore to supply all of Europe for years, and is seen displacing other dominant producers due to its proximity to the continent.

Opportunity to Participate

Even though Arcelor and Nunavut Iron have called a truce, it may not be a done deal. The Baffinland board, which meets later Friday, has yet to respond to the joint offer, and its chairman and acting chief executive has come out against it.

Richard McCloskey said Nunavut was the only existing shareholder that would retain ownership under the joint bid, and he said that position was unfair to the others.

"They get the opportunity to participate in a 30 percent joint venture with ArcelorMittal, and I as a shareholder do not have that same opportunity," said McCloskey, who owns about 2.4 percent of Baffinland shares.

Nunavut chairman Bruce Walter said McCloskey's response to the bid was "utter nonsense".

"They thought the bid at C$1.40 a share was terrific for the shareholders and told them so," said Walter. "So how can a bid at C$1.50 a share somehow not be better."

The joint offer from Arcelor and Nunavut, backed by the Energy and Minerals Group, ends a fight that began in September. Previously Nunavut was offering C$1.45 per share for 60 percent of Baffinland, and Arcelor was bidding C$1.40 a share for the entire company.

Arcelor wants the deposit to ease its dependence on producers like BHP Billiton and Vale SA, which have long held much of the supply of iron ore, the main component of steel.

The cost of developing the project, estimated at as much as C$4 billion, will dwarf the acquisition price and comes as iron ore prices are at near-record highs.

Production at Mary River won't begin until at least 2013, Baffinland said on Thursday.

Joint Offer

The joint offer, filed under ArcelorMittal's banner, is open until 11:59 p.m. EST on January 24 and is subject to the condition that at least 66 2/3 percent of the common shares are tendered, calculated on the fully diluted basis.

Nunavut Iron and its affiliates hold about 10.3 percent of Baffinland's shares, while ArcelorMittal has lock-up agreements with the largest shareholder, Resource Capital Funds, with about 22.5 percent.

Directors and officers of Baffinland have also agreed to tender their shares to Arcelor, representing 2.4 percent. It was not immediately clear whether that lock-up agreement would stay in effect if the board opposes the joint bid.

Additional reporting by Julie Gordon, Euan Rocha; Editing by Frank McGurty and Janet Guttsman

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