Nunavut Iron Ore Acquisition Inc. and steel giant ArcelorMittal have called a truce in their heated takeover battle for Baffinland Iron Mines.
The two companies tabled a joint bid Friday for the company at a price – $1.50 per share – that was higher than either had been willing to cough up on their own.
Under the new agreement, ArcelorMittal and Nunavut Iron will own 70 per cent and 30 per cent of Baffinland, respectively. The deal is worth about $593-million on a fully diluted basis, a far cry from the 80-cents per share Nunavut first offered in September.
At stake is Baffinland's undeveloped Mary River iron ore project in the high Arctic, highly desirable to steel makers such as Arcelor.
Baffinland's response to the détente is still uncertain, however. It had backed the ArcelorMittal bid, and could reinstate poison-pill plans if it feels betrayed by the new alliance.
The joint effort is being spun as a win-win for both Nunavut and ArcelorMittal, but it was Nunavut chairman Bruce Walter who first extended the olive branch. The intensity of the battle had picked up in recent weeks, with both firms issuing new offers. Since acquiring Baffinland is merely the first step in an estimated $4-billion development of the Mary River project, the bidders thought the takeover price was getting too steep. Their agreement will hopefully prevent any further increases.
Although the two companies had disparaged each other's bids for months, Mr. Walter said reaching out was not hard. "I don't think anybody throughout the process had taken any cheap shots," he said. "All parties involved understand the difference between the way in which one engages in the takeover bid game and how you want to conduct yourself going forward."
The idea of a joint offer did not seem too far-fetched, either. "You're crazy if you don't always have a menu of options in front of you" during a hostile takeover, he said. "This has certainly been one of the potential outcomes that has been on that list for some time."
But some parties weren't as nonchalant, including Baffinland chairman and CEO Richard McCloskey, who told Bloomberg News he did not plan on backing the deal. Calls to the company were not returned.
Analyst Peter Campbell at Jennings Capital was also taken aback, but he isn't personally involved so he didn't have what he described as a "knee-jerk" reaction like Mr. McCloskey. However, he was sympathetic to the Baffinland team, who he said was caught off guard.
"I wouldn't be surprised if they view the ArcelorMittal offer as no longer being friendly," Mr. Campbell said, commenting on the support agreement Baffinland's board of directors and ArcelorMittal originally signed. If Baffinland feels betrayed, he said the company could terminate the agreement and re-instate a poison pill. Two such shareholder agreements have been withdrawn during the takeover battle.
Although the joint offer is better than anything put forward to date, Baffinland "has a fiduciary responsibility to every shareholder to get the best possible price," Mr. Campbell said, "and you get the best possible price when you've got a bidding process."
Breaking the support agreement would allow Baffinland to solicit other offers, which it currently cannot do, and a poison-pill plan would create a window for a potential white knight to emerge, said Mr. Campbell. He added that Baffinland formed many relationships over the last several years while trying to find a strategic partner to help develop Mary River and an alternative suitor could be among them.
But time isn't on its side. The new joint bid expires on Jan. 24 and Nunavut and ArcelorMittal already have the support of people who own 25 per cent of Baffinland's shares. Nunavut owns about 11 per cent and Baffinland's biggest shareholder had already signed a support agreement with ArcelorMittal.