By Euan Rocha
TORONTO Jan 14 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
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.