A drawn-out bitter battle between the world's largest steel maker and a U.S.-backed private equity group for a Toronto-based junior minor has taken another twist - back into the hands of the Ontario Securities Commission.
Hostile bidder Nunavut Iron Ore Acquisition Inc. on Monday asked the regulator to thwart another poison pill plan instituted by the board of Baffinland over the weekend, two weeks after a previous plan had been shut down.
Nunavut is battling Arcelor for control of Baffinland and its huge Mary River iron ore deposit on Baffin Island, which the miner cannot afford to develop on its own without billions in additional capital.
The commission forced Baffinland to abolish its previous rights plan two weeks ago, ruling that the poison pill had served its purpose by providing time for Luxembourg-based steel maker ArcelorMittal to enter the fray. But Baffinland has since inked a new deal with the steel giant, which requested another rights plan in exchange for coughing up more than double the amount Nunavut is willing to pay.
The dispute highlights the urgency with which steel makers are seeking the increasingly scarce iron ore they need to meet escalating demand from emerging economies.
The bulk of current iron ore production, and much of its pricing, is controlled by three giant mining companies - Vale SA, BHP Billiton Ltd. and Rio Tinto. Steel makers would like to gain control over more of the raw material in order to protect themselves against future price hikes.
Nunavut Iron Ore's latest offer is worth $1.35 per share for 50.1 per cent of the company, of which it currently owns about 10 per cent. That brings the total value to $212-million. ArcelorMittal's bid comes in at $1.25 per share in cash for full ownership, totalling $492-million.
Nunavut Iron Ore told regulators the second poison pill again impedes shareholders' free choice.
Baffinland stands behind its actions. "We look at it as a protection, rather than a prohibition," said Daniella Dimitrov, Baffinland's vice-chair.
The company argues that if the rights plan is knocked down and Nunavut obtains majority ownership, shareholders may not understand that shares not tendered will have less liquidity because about 72 per cent of the company will be held by two major shareholders - Nunavut and Resource Capital Funds. In that event, the share price could drop.
Resource Capital Funds has already signed an agreement to tender to ArcelorMittal.
But Nunavut contends it has been clear about its intentions and the second rights plan should be knocked down for the same reasons as the first. "We have been clear from our first bid that we are quite satisfied if we can [simply]gain control of the company," said Bruce Walter, chairman of Iron Ore Holdings, Nunavut's parent company.
The OSC must make a rapid decision - the two bids expire on Dec. 29 and Dec. 30. However, hearings might be delayed until after the holidays, and the bids then would be extended.
The OSC declined to comment.
Even if the commission orders the rights plan shut down, there is no guarantee Nunavut Iron Ore will claim victory in the takeover battle. Baffinland's board has signed a second definitive agreement with ArcelorMittal that will pay the global steel company a $15.5-million break fee if the deal falls apart, up from $11-million.
Before Nunavut Iron Ore's first hostile bid, Baffinland was in "advanced negotiations" for a joint venture to develop Mary River. The proposed $4-billion project on Baffin Island, northwest of Iqaluit, has been touted as one of the best undeveloped iron ore deposits in the world.
The Mary River project could see 18 million tonnes of iron ore mined each year for two decades, and includes the construction of a $1.2-billion, 140-kilometre railway to transport iron ore to a port for shipping.