When Barrick Gold Corp. decided a few weeks ago to launch secret takeover talks with Equinox Minerals Ltd., it was betting that it could trump rival Minmetals Resources Ltd. by moving quickly with a richer offer.
Barrick's nimbleness has proven instrumental in securing Equinox's support Monday for a competing $7.3-billion takeover offer. But no one expected to see China's Minmetals retreat so quickly from the playing field.
Less than 15 hours after Barrick unveiled its agreement early Monday morning to acquire Equinox and its copper holdings in Africa and Saudi Arabia, Minmetals announced it was pulling out of the bidding.
It is almost unheard of for takeover acquirers to walk away before competitors have released acquisition details in a takeover circular. What makes Minmetals' reversal so extraordinary is that it made the decision so rapidly after dragging its feet for weeks to finance and formally launch its proposed $6.3-billion offer for Equinox.
"To see Minmetals be so slow at the start and then to pull out so fast is an incredible turn of events," said one person close to Equinox.
Minmetals' abrupt about-face appears driven largely by concerns that the takeover price had become too rich. Despite China's enormous appetite for resources, the country's state-owned companies are under enormous pressure to be disciplined at the deal table to avoid inflating sellers expectations.
"MMR [Minmetals]made a very detailed assessment of the value of Equinox under a range of assumptions and, while we still consider the Equinox assets provide a good fit with MMR's strategy, the price offered by Barrick is above our most optimistic assessment of value," Andrew Michelmore, chief executive officer of MMR, said in a statement.
Another issue is politics. Although Minmetals' bid for Equinox, a Toronto based company with no assets in Canada, did not trigger widespread worries about another foreign takeover, there were concerns that a bidding war with Canadian mining giant Barrick might have ignited a political reaction during the final week of the federal election.
"They didn't want to risk any political flak," said one person familiar with China's strategy who declined to be identified.
Barrick made its first move days after Minmetals announced its plans earlier this month to acquire Equinox. "They made it clear that they wanted to move fast and they wanted to put something on the table that pleased people," one source said.
Working in Barrick's advantage was a growing frustration among Equinox's directors over the lack of communication from Minmetals. Directors were also disappointed with the offering price, which they ultimately rejected as inadequate.
Sources said the board had almost no communication with Minmetals or Mr. Michelmore, and that the company offered no explanation when its self-imposed deadline for securing financing passed last week. "They just expected us to wait," one source said.
Talks with Barrick, however, moved at a fast pace. Typically it takes months for a company to investigate and finance a multibillion dollar takeover, but Barrick CEO Aaron Regent set an aggressive pace in the talks because he believed he could knock Minmetals out of play with a generous and unexpected offer.
Sources said the talks between Barrick and Equinox were mostly completed last week and the final terms were negotiated in Toronto between Mr. Regent and Equinox chairman Peter Tomsett.