* Stock in Capital Gold trading near Gammon offer price
* Shareholders prefer stability of Gammon shares.
* Some major shareholders prefer Timmins bid
By Euan Rocha and Pav Jordan
TORONTO, March 21 Gammon Gold GAM.TO is poised to win a drawn-out battle for New York-based Capital Gold CGC.A, even though some of its largest stakeholders prefer a rival bid.
The two companies are after Capital Gold's El Chanate mine in northern Mexico, a region where both Gammon and competitor Timmins Gold TMM.V own operating gold mines.
Gammon is offering $1.09 plus 0.5209 of a Gammon share for each Capital share, valuing the U.S. company at some $355 million at Tuesday's prices.
Timmins, another Canadian miner, is offering 2.27 Timmins' shares plus $0.25 in cash for each Capital share, valuing the company at some C$372 million.
But Gammon is a more established company, with a more liquid stock that gets more attention from bank analysts and the media, and analysts say that could tilt the deal.
"Many of the shareholders are supportive of the Gammon proposal. They have real stock. It's shortable, it's liquid, it's actual paper," said a large Capital Gold shareholder who declined to be named and who plans to support the Gammon deal. "The Timmins stock is air and bounces around."
Both companies trade in Toronto, but Gammon is on the senior exchange while Timmins trades on the venture exchange.
Both raised the cash components of their bids last week. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
For Details on most recent offers: [ID:nN15254881]
For Comparative Data: link.reuters.com/myn68r ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
"We expect the vote to come down to the wire as Capital Gold shareholders consider not only the implied prices, but also the certainty of the offer and the time to close," wrote National Bank analyst Tara Hassan in a recent note to clients.
Capital Gold was around $5.74 a share in New York on Tuesday, or just under the Gammon Gold offer price, which is equivalent to about $5.78 a share at current prices. The Timmins Gold offer was worth about $6.06 a share on Tuesday.
Gammon Gold rose 1.5 percent to C$9.00 a share in Toronto, while shares of Timmins were flat at C$2.56.
DRAWN OUT BATTLE
The battle for Capital Gold began in September when Timmins put in a hostile bid. Gammon came in in October as a white knight with an offer that underscored the increasing urgency of takeovers in a merger-happy gold industry.
John Brownlie, the former chief executive and a shareholder in Capital Gold said gold bugs were siding more with Timmins and speculators more with Gammon.
"I think Timmins' strategy is far more in line with the people that invest in the junior gold space, the people who invest in growth," Brownlie, who plans to vote his 0.5 percent stake for the Timmins deal, told Reuters.
Brownlie, who is now chief executive of Mexico-focused Oro Mining OGR.V, said Gammon likely wanted to add quick revenue from the El Chanate mine.
Sprott Asset Management, Capital Gold's largest single investor with a 12.5 percent stake, also supports the Timmins bid. It was not available for comment.
But the odds are stacked against Timmins, and Annie Zhang of Toronto-based Octagon Capital said Timmins would have to launch a proxy battle to unseat Capital Gold's board to win.
"There's only one deal on the table right now, because at the meeting shareholders are going to be voting on the Gammon transaction," she said.
Capital Gold's board stands firmly behind the Gammon bid and has urged shareholders to vote for the deal at an April 1 meeting. [ID:nN17132651]
ISS Proxy Advisory Services and Glass Lewis & Co -- two major proxy advisory firms -- have also advised clients to vote for the Gammon offer, noting the greater security of owning Gammon stock. ($1= $0.98 Canadian) (Additional reporting by Dave Warner in Philadelphia; editing by Janet Guttsman)