Osisko Mining Corp. says the hostile bid it just got from Goldcorp Inc. is opportunistic, and numbers run by the bankers at Morrison Park Advisors back that up.
Morrison Park is an independent advisory firm http://www.morrisonpark.com/our-business and is not working for either side. Stephen Altmann, a managing director at the firm, looked at the deal and found that in pretty much every way, the bid price leaves Osisko shareholders at a disadvantage, especially if they want pure gold exposure.
The opening value of the Goldcorp bid was $5.95 a share, with $2.26 of that in cash and the balance in Goldcorp stock.
Under those terms, Osisko shareholders would go from owning all of a company that produces 100 per cent precious metals to owning 7 per cent of a company that produces 78 per cent precious metals and 22 per cent base metals.
They also see the value of the reserves they own drop significantly. At the moment, the value of the metal in the ground for Osisko (based on proven and probable reserves) works out to $26 a share. The combined company would give Osisko shareholders metal in the ground worth $24. That's a 5-per-cent dilution.
The discrepancy is even larger when measured and indicated resources are included. At that point, the dilution on a metal value basis jumps to 36 per cent.
You can see why Goldcorp would want Osisko at this price. That's an economical way to replace reserves.
Not that anybody really buys gold companies for earnings, but the transaction is also 5 per cent a share dilutive when looking at the last 12 months of earnings before interest, taxes, depreciation and amortization.
Mr. Altman calculates that Goldcorp would have to increase the share component of the cash and stock deal enough to raise the price to $6.16 a share to eliminate the dilution on proven and probable reserves and EBITDA for the last 12 months.
And that is about where Osisko shares are trading.
There are advantages to being part of a bigger company, to be sure. They include more liquidity, more capacity to raise funds in the markets and sometimes a premium valuation. But Osisko shareholders have chosen to own Osisko for a reason. Had they wanted to be part of a bigger company, they could do so without a takeover bid.
There may not be many other bidders for Osisko, if any, but look for savvy shareholders to push for at least a price that doesn't leave them worse off when it comes to the value of the reserves they own.