Investors question ‘cheap’ takeover offer for Quadra FNX – by Brenda Bouw (Globe and Mail – December 7, 2011)

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Quadra FNX Mining Ltd. has agreed to a $3-billion takeover by Polish copper producer KGHM Polska Miedz SA, triggering criticism the company is accepting a low-ball offer due to an overly cautious view of the metal’s prospects.

The $15-a-share, all-cash bid offers a 40-per-cent premium to Quadra’s recent stock price. But some investors believe it’s a stingy offer that undervalues the company’s assets, which include the promising Sierra Gorda copper project in Chile and operations in Sudbury, Ont.

“Unless the operations are running much weaker than expected, we do not see why one of the most bullish copper companies is selling out so cheap,” said Cormark Securities analyst Cliff Hale-Sanders. .”

Toronto-based hedge fund West Face Capital Inc., which said Tuesday that it owns a 6-per-cent stake in Quadra, called the bid opportunistic. “Given the fact that the shares were trading at $16 a few months ago, it is puzzling that the board did not attempt to contact any other purchasers or run a process,” said chief executive officer Greg Boland.

Quadra, however, said the offer was too rich to refuse, citing a downward shift in the copper market in recent months, while at the same time structuring a deal that leaves room for a competing offer.

Shares of Vancouver-based Quadra closed up 39.9 per cent on the Toronto Stock Exchange on Tuesday, which suggests investors anticipate a rival bid. Quadra shares dropped to a 52-week low of $7.69 in October, as copper prices dived to about $3 (U.S.) a pound amid worries a global economic slowdown, including softening demand in China, will decrease demand for the widely used metal.

Still, the share price is down from a high of $17.55 reached in January, just before copper surged to an all-time high of $4.62 per pound, when the economy appeared more stable. Quadra shares traded at a record of just over $26 in 2008, prior to the global financial crisis.

Quadra chief executive officer Paul Blythe said the company wasn’t looking to sell, but the KGHM bid was too good not to put to shareholders, particularly given the dip in copper prices to about $3.50 today.

“Our view is that basically the market’s view of long-term copper has shifted downwards,” Mr. Blythe said in an interview, citing debt problems in the United States and Europe, and concerns about slowing growth in China.

The risk, he said, was turning away the KGHM offer and holding an auction, then having no bid on the table.

“We are not a company that’s ever sat there and said, ‘No, we aren’t for sale. Go away,'” he said. “People haven’t been lining up at the door to do that. Having said that, the dynamics always change when companies are in play.”

Warsaw Stock Exchange-listed KGHM, the world’s ninth-largest producer of copper and third-largest producer of silver, said the deal will help it reach a goal to produce up to 700,000 tonnes of copper by 2018, up from about 425,000 last year.

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