Tuesday, June 05, 2007

Norilsk Nickel is left as winner in bid for LionOre

Norilsk Nickel is set to become the winner in the battle for Canadian mining group LionOre, after its rival bidder Xstrata said the price was too steep. As the Wall Street Journal reports in Tuesday's issue:

Xstrata PLC said it wouldn't exercise its right to match OAO Norilsk Nickel's 6.82 billion Canadian dollar (US$6.43 billion) takeover bid for Canadian gold and nickel producer LionOre Mining International Ltd. Norilsk, a Russian nickel and palladium producer, unveiled its enhanced bid last week, which topped Xstrata's latest offer of C$6.2 billion. LionOre found Norilsk's offer superior to Xstrata's. Under a support agreement, LionOre must pay Anglo-Swiss mining company Xstrata a C$305 million breakup fee if it takes an outside bid.

Norilsk Nickel, the world’s largest nickel miner and a leading producer of copper, platinum and palladium, is highly interested in its smaller Canadian counterpart as it feels an urgent need to expand into foreign markets and become competitive in the global commodity crunch amid the aggressive consolidation ventures from global players like BHP Billiton, Anglo American and Rio Tinto.

The deal comes in the midst of record-high nickel prices, up 45% this year on the base of very high capital spending worldwide, and high demand for stainless steel, a primary component of which is nickel. If Norilsk Nickel succeeds in this deal it would be the largest foreign acquisition by a Russian business to date and would open up the doors for more such expansions from the likes of Severstal, Basel, Evraz Group, and others.

The battle for control of LionOre started in March with a bid from Xstrata of C$4.6bn, trumped last month by a bid of C$5.3bn from Norilsk. This blog has extensively covered the bidding war. Xstrata quickly increased its offer to C$6.2bn, but then Norilsk raised the stakes with a bid of C$6.8bn or C$27.50 a share, a price that led some in the industry to worry that prices were getting out of hand. The acquisition will be the biggest a Russian company has pursued externally so far and only looks to be the start with the pending battle of Russian government-owned Aeroflot airlines for Italy's Alitalia, and Basel's purchase of a controlling stake in Canadian parts maker Magna International.

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