December 16, 2010 / 5:24 PM / in 7 years

Nunavut trumps Arcelor with new Baffinland bid

TORONTO (Reuters) - Nunavut Iron, backed by a U.S. private equity firm, raised its hostile takeover bid for Baffinland Iron Mines by 69 percent on Thursday as it wrestles steel giant ArcelorMittal for an iron ore deposit estimated to be big enough to supply all of Europe.

Nunavut raised its offer to C$1.35 a share, easily topping a friendly C$1.10 per share offer from Arcelor, the world’s largest steelmaker.

Nunavut, a wholly owned subsidiary of Iron Ore Holdings LP, was incorporated in Canada in August specifically for the purpose of bidding for Baffinland. Parent Iron Ore Holdings LP was incorporated in the United States for the same purpose. Both are backed by private equity firm the Energy and Minerals Group.

Baffinland is a Toronto-based junior mining explorer that is sitting on enough iron ore to supply all of Europe in its Mary River project on Baffin Island in the infrastructure-poor Canadian Arctic territory of Nunavut.

Baffinland shares were the most heavily traded on the Toronto Stock Exchange on Thursday on volume more than three times higher than the second most traded stock. The price, however, was static at about C$1.28 a share, a rise of only 3.23 percent.

ArcelorMittal said Nunavut’s bid was not actually worth more to investors. In its new offer, Nunavut cut the percentage of Baffinland shares it would require to complete a deal to 50.1 percent from two-thirds. Arcelor is bidding for two-thirds of the shares.

“We are aware of Nunavut’s revised hostile offer, which is a partial bid and does not constitute a superior offer under the terms of the support agreement,” said an Arcelor spokesman.

Baffinland stock has traded slightly above Arcelor offer for the past month as investors bet a higher takeover bid might materialize.

“As it would probably be more beneficial for an integrated steel company to develop BIM’s Mary River project, we would not be surprised if a competing bid from ArcelorMittal emerges,” Desjardins Securities analysts John Redstone said in a report.

The estimated C$4 billion-plus ($3.96 billion-plus) cost of bringing the Mary River project to production is more than Baffinland can bear and it has sought suitors or strategic partners.

Luxembourg-based ArcelorMittal offered on November 8 to buy the company as it seeks a secure source of raw materials for its steel mills.

Nunavut’s new offer values Baffinland at about C$531.1 million, compared with Arcelor’s C$433 million bid. Nunavut initially bid 80 cents a share, or about C$274 million.

The new bid ends weeks of suspense as Nunavut repeatedly extended the deadline on its original offer, without sweetening the bid.

Nunavut’s new target of 50.1 percent of the shares may still be difficult to attain because holders of at least 25.5 percent of Baffinland stock - including directors and top shareholder Resource Capital Associates - are in lock-up agreements to tender to Arcelor.

Nunavut already owns 8.8 percent and it said in a statement it needs to buy 162.4 million Baffinland shares for the deal to go through. It extended the expiration date of its offer to December 30.

Arbitragers with about 13 percent of the shares have held off from tendering their shares.

Whoever develops Mary River could challenge Brazil’s Vale SA as the major iron supplier in the European market.

Nunavut Iron is wholly owned by Iron Ore Holdings, a limited partnership formed for the purpose of making the offer. Iron Ore Holdings is owned by Bruce Walter, chairman of Nunavut Iron, Jowdat Waheed, president and chief executive of Nunavut Iron, and funds managed by the Energy & Minerals Group, which is providing the majority of the equity financing for the offer has a family of funds with over US$2 billion under management.

On Monday, ArcelorMittal received approval from Canada’s Commissioner of Competition for its bid to go ahead.

($1=$1.01 Canadian)

Additional reporting by Aftab Ahmed; editing by Janet Guttsman and Peter Galloway

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