Nunavut Iron Ore Acquisition Inc., backed by a U.S. private equity firm, raised its hostile takeover bid for Baffinland Iron Mines Corp. by 69 per cent 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 $1.35 a share, easily topping a friendly $1.10 per share offer from Arcelor, the world's largest steel maker.
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 Thursday on volume more than double that of the second most traded stock. The price, however, was static at about $1.28 a share, a rise of only 3.23 per cent.
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 per cent 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.
Baffinland said it was evaluating the new offer.
The estimated $4-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 Nov. 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 $531.1-million, compared with Arcelor's $433-million bid. Nunavut initially bid 80 cents a share, or about $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 per cent of the shares may still be difficult to attain because holders of at least 25.5 per cent 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 per cent of the shares 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 Dec. 30.
Arbitragers with about 13 per cent 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 more than $2-billion (U.S.) under management.
On Monday, ArcelorMittal received approval from Canada's Commissioner of Competition for its bid to go ahead.