Quadra Takeover Up for Grabs With Escalating Price Driving Deal – by Tara Lachapelle and Liezel Hill – (Bloomberg.com – December 8, 2011)


Quadra FNX Mining Ltd. is poised to secure the largest takeover price increase in North America as the cheapest copper bid on record leaves room for Vale SA (VALE3) or Antofagasta (ANTO) Plc to make a competing offer.

Poland’s KGHM Polska Miedz SA agreed this week to buy Quadra for C$2.28 billion ($2.26 billion) including net cash, valuing the Canadian miner at 5.2 times net income, the lowest for a copper takeover of similar size, according to data compiled by Bloomberg. The price is also a 36 percent discount to net asset value, based on analysts’ estimates compiled by Bloomberg. After closing 5.4 percent above the bid yesterday, Quadra is more likely to draw a higher offer than any other deal greater than $500 million in North America, the data show.

While the Vancouver-based company agreed not to solicit rival proposals to KGHM’s C$15 a share in cash, Quadra may still lure offers from Vale (VALE5) or Antofagasta with its copper deposit in Chile and mines in the U.S. and Canada, according to Stifel Nicolaus & Co. With analysts expecting Quadra to reach C$18.28 in the next 12 months as an independent company, a bidding war may push the price tag to as much as C$28.25, 88 percent higher than the current agreement, said Salman Partners Inc.

“The stock is trading at a premium to the C$15 bid not only because the offer seems to be at a deep discount to fundamental value and what the consensus target prices were, but also because it was pretty clear that there had not been an auction process,” Catharine Sterritt, a Toronto-based risk arbitrage strategist at Scotia Capital Inc., said in a telephone interview. “There are other people who will be interested.”

‘Not Emotions’

Kristina Howe, a spokeswoman for Quadra, didn’t respond to a phone call or e-mail requesting comment.

“The price we offered for Quadra is a result of fundamental analysis and not emotions,” said Dariusz Wyborski, a spokesman for Lubin, Poland-based KGHM. (KGH) “It’s a fair price and we don’t see ourselves getting into a bidding war.”

A representative for Rio de Janeiro-based Vale said the company doesn’t comment on rumors or speculation. Representatives for London-based Antofagasta didn’t respond to e-mails.

KGHM, the copper miner with the largest European output, announced on Dec. 6 its agreement to purchase Quadra at a 43 percent premium to the stock’s 20-day trading average. The company, which is 32 percent owned by the Treasury Ministry in Poland, said the deal will boost annual production by 100,000 tons from 570,000 tons planned this year. The transaction, expected to close in the first quarter, will be the largest overseas acquisition by a Polish company, data compiled by Bloomberg show.

Cheapest Copper Takeover

At 5.2 times net income, Quadra would be the cheapest copper takeover greater than $500 million on record, the data show. Excluding Quadra, deals in the industry have cost a median of 12.5 times profit.

After declining 32 percent this year, Quadra shares were up 39 percent in the last two days. The stock closed yesterday at C$15.81, indicating that traders who profit from mergers and acquisitions expect a richer bid. Quadra is trading the most above its bid of any pending North American takeover valued at more than $500 million, according to data compiled by Bloomberg.

“The trading is telling us, at the very least, KGHM is going to have to up their offer,” George Topping, a Toronto- based analyst at Stifel Nicolaus, said in a phone interview. “Who would tender at a C$15 bid when you can just sell it in the marketplace for where it’s trading now?”

Quadra fell 1 cent to C$15.80 at 9:55 a.m. in Toronto.

‘Too Low’

The deal is “too low” relative to the value of Quadra’s underlying assets, he said. KGHM’s bid is about 36 percent less than Quadra’s net asset value of C$23.60 a share, based on the average of four analysts’ estimates compiled by Bloomberg, including Topping, who pegs the value at C$20 a share.

“The pricing looks low compared with the net asset value of the company,” Raymond Goldie, a Toronto-based analyst at Salman Partners, said in a phone interview. “The market is thinking there will be another bid.”

For the rest of this article, please go to the Bloomberg.com website: http://www.bloomberg.com/news/2011-12-08/quadra-up-for-grabs-with-escalating-price-driving-deal-real-m-a.html