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Inmet Mining and Lundin Mining have publicly said they amicably walked away from their proposed merger, but the lingering $120-million break fee casts a shadow on that rosy public image.

Shortly after the two firms announced they were parting ways on Tuesday, they made it perfectly clear that Lundin would still have to pay Inmet a $120-million break fee if Equinox's takeover bid is successful.

That payment seems a bit odd considering the two miners agreed to "mutually terminate" their arrangement agreement.

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Digging through that specific document, the break fee was required under any one of three scenarios: one company's board of directors withdraws or changes its recommendation on the merger; a third party makes a bid and Lundin or Inmet's shareholders don't vote in favour of the merger; or one company's board accepts a superior proposal.

At this time, none of those three things has happened. However, it looks like Inmet is trying to tie the break fee to the second scenario, considering that Equinox's bid remains on the table. But the question is, does that scenario even apply any more, considering the arrangement agreement has been completely terminated? That's probably a decision that the courts or a regulator will have to make.

Lundin has also put a poison pill in place, which is a rare tactic considering that the shareholder rights plan is being instituted mid-bid and a third party has already emerged.

It's somewhat similar to 2005 when Inco and Falconbridge Ltd. struck a friendly takeover agreement, which was then upended by Xstrata PLC's hostile bid for Falconbridge. When bidding, Xstrata applied to have Falconbridge's shareholder rights plan struck down, stating that the pill had already been in place for nine months.

Ultimately the Ontario Securities Commission rejected Xstrata's request to remove the poison pill, and the Ontario courts ruled that Falconbridge didn't need to call a meeting of shareholders to put the plan to a vote.

However, its important to note that Xstrata already owned 20 per cent of Falconbridge at the time of its bid because that factored into the OSC's decision. Had Xstrata acquired any more shares, it might have been able to block any competing bids.

More recently, Baffinland tried to institute a shareholder rights plan after reaching a deal with ArcelorMittal last fall, but the OSC struck that request down because a second bid from Nunavut Iron Ore was already on the table.

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This case could be a bit tricky, though. Technically Lundin shareholders didn't get a chance to vote between two competing bids because the Inmet-Lundin merger was shut down without their say.

Moral of the story: Lundin is doing whatever it can to make Equinox's bid as difficult as possible.

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