UPDATE 1-Osisko bid comes after many spurned proposals -Goldcorp

Tue Jan 14, 2014 5:55pm EST

By Euan Rocha

TORONTO Jan 14 (Reuters) - Goldcorp Inc commenced its formal bid for Osisko Mining Corp on Tuesday, saying that it chose to proceed with the unsolicited offer after a long series of frustrated attempts to engage Osisko in discussions about a possible deal.

In a takeover bid circular, filed with securities regulators on Tuesday, Goldcorp gave details of a series of attempts, since 2008, to reach a friendly deal with Osisko.

Goldcorp announced it was launching an unsolicited cash-and-stock bid to acquire its smaller rival Osisko for C$2.6 billion ($2.4 billion) on Monday. If successful, the takeover will give Goldcorp control of Osisko's huge Malartic gold mine in Quebec, along with other assets.

Vancouver-based Goldcorp said it opted to proceed with the unsolicited offer only after having "made repeated and genuine attempts to discuss a mutually beneficial transaction."

Goldcorp said Osisko's management has continually refused to either negotiate, or engage in meaningful dialogue, leading to the current circumstances.

The company said it last tried to reach a deal with Osisko over the summer, but Osisko's board decided to terminate talks about a possible transaction in November.

A spokesman for Osisko was not immediately reachable for comment on the previous discussions between the two sides. Late on Monday, Osisko issued a statement saying it would review the Goldcorp offer and advise shareholders in due course.

Shares in Osisko were relatively flat in trading on Tuesday, but the stock, which closed at C$6.23, continues to hold well above the current value of the Goldcorp bid, indicating investors are betting a sweetened bid will emerge.

The pullback in Goldcorp's share price since the offer was outlined on Monday means the implied value of the Goldcorp cash-and-stock bid has dropped to C$5.81 from C$5.95. Osisko's stock is currently trading at a 7 percent premium to the value of the current offer.

WHITE KNIGHT BID UNLIKELY

John Goldsmith, deputy head of equities at Montrusco Bolton, said he sees the bid for Osisko as a good deal for Goldcorp as it would give the company a fairly large asset in fairly decent jurisdiction, at a good price.

"Frankly, I don't see who the white knight is going to be besides from possibly Agnico-Eagle," said Goldsmith, whose firm owns 815,000 shares in Goldcorp, according to Thomson Reuters data.

Most analysts agree that while Goldcorp may have to sweeten its offer slightly in order to reach a friendly deal, it is not likely to have to compete against any rival bidders as most of the large players in the gold industry are currently hamstrung by balance sheet woes, stalled projects and other issues.

"The reasons we liked Osisko as a gold holding, namely its positive free cash flow, low execution risk and low political risk, are the same why Goldcorp is opportunistically trying to acquire the company," said Cormark Securities analyst Richard Gray in a note to clients, adding that a higher Goldcorp bid seems to be Osisko's best hope of receiving more value.

Some analysts however remain skeptical about the merits of this proposal for Goldcorp.

Veritas Investment analyst Pawel Rajszel argues that buying Osisko would destroy value for Goldcorp, and increase operating and financial risk for the company.

"The transaction would make Goldcorp more susceptible to a falling gold price than many of its peers," said Rajszel in a note to clients, adding the company ought to focus on its own projects and replenishing its development pipeline rather than pre-occupying itself with a hostile takeover.

Goldcorp's gamble though did not raise concerns with credit rating agency Moody's Investors Service, which affirmed its own ratings on the company following the announcement of the offer.

"The affirmation of the rating reflects our view that the acquisition of Osisko will not materially alter Goldcorp's credit profile," said Darren Kirk, a senior credit officer with Moody's, in a statement on Tuesday.

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