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There was a time when nothing was better than getting a hostile bid for your mining company shares. This is not that time. Hostile acquisitions are creatures of the extremes of the mining cycle. There are now two big ones outstanding in Canada, and there are likely going to be more. And it’s not going to be very much fun to be the target.
In better times, getting put into play is like winning a lottery. The hostile acquirer invariably starts a bidding war that ends in a top-dollar sale. Exuberant chief executives decide they have to have something and can’t stop raising their offers. Shareholders of Alcan Inc., Inco and Falconbridge Ltd. probably still haven’t spent their winnings, years after the last round of such sales.
Most of the CEOs who overpaid for those companies ended up pulling the ripcord on their golden parachutes.Now, at the bottom of the cycle, hostile offers usually result from a disconnect about value. Mining shares have plunged, and target boards don’t want to think about selling at such low prices. Frustrated acquirers give up on negotiations and send their bid directly to shareholders.
Today, being put into play likely means a sale at a price that the target companies would rather not think about. For Osisko Mining Corp., facing a $2.6-billion bid from Goldcorp Inc., and Augusta Resource Corp. now staring down a $540-million hostile offer from HudBay Minerals Inc., few white knights are lurking in the background.
Bidding wars are unlikely and the expectation from bankers and analysts is simply that the hunted will do well to extract anything more than the standard bump of a few per cent from the hostile bidder to see a transaction through.
Targets can grouse about insulting and opportunistic offers that undervalue their assets, and all the other rhetoric that gets trotted out at times like this, in press releases and proxy circulars.
Unfortunately for Osisko and Augusta, Canadian shareholders rarely say no when there is a passable premium on the table. Hedge funds that step in to profit from takeover bids almost never do so.
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