Minmetals Resources Ltd. is frittering away one of the key advantages of a hostile bidder -- time -- in its quest to own Equinox Minerals Ltd.
On April 3, Minmetals Resources said it would launch an all-cash $6.3-billion offer for Equinox Minerals. Minmetals, a publicly traded firm controlled by a Chinese state-owned enterprise, said it would officially launch the bid via an offering and circular that would go out to Equinox shareholders within three weeks.
It's now the last business day to meet that deadline, which officially is Sunday, given that Friday is a holiday, and there's no sign yet of an offer. A spokesperson for Minmetals said the offer won't be mailed today. So, the question is, why is Minmetals taking its time?
It's a curious strategy, given that there was every sign that the bid was planned in advance. Moving fast is one of the most effective pressure tactics of a hostile bidder, and Minmetals doesn't seem to be intent on taking advantage of that.
With a hostile bid, the standard playbook is you get in, start the clock and don't give the target time to wiggle away.
The sooner you make an official offer, the sooner you can go to securities commissions and ask them to start dismantling the targets's defences, such as poison pills. Equinox has a shareholder rights plan that its shareholders approved in 2009.
The upshot is, you give the target as little time as possible to find an alternative such as a higher bid.
It's not just that a buyer can lose a target by dallying, it's that delay can cause a runup in the price as other bidders give the target leverage. Even if the bidder does get the target in the end, it can cost more. Already, Equinox is trading well above the $7-a-share offer that Minmetals says it plans to make.
(Though, to be sure, this can go both ways. A drop in the copper market could make Equinox cheaper.)
Minmetals was clearly prepared to make the bid, saying it had its eye on Equinox for some time. It had already approached Australian regulators before making public its intention.
Under Canadian takeover rules, hostile takeover bids must be fully financed before they can be officially commenced. That shouldn't be the problem. Minmetals announced almost two weeks ago that it had the financing lined up for the bid from Chinese banks and other backers in the country.