On Friday, I predicted that the pitched takeover battle between fertilizer firms Agrium (NYSE: AGU ) and CF Industries (NYSE: CF ) would fizzle. It turns out that Monday's most anticlimactic event happened down in Mexico.
In the fall of 2008, silver sultan Fresnillo first bought as many shares of MAG Silver (AMEX: MVG ) as the latter firm's poison pill would allow. Then, in December, the firm proffered a pittance for the remainder.
When some impressive new drilling results emerged in January, MAG shares soared and my colleague Chris Barker concluded that Fresnillo would raise its bid in order to seal the deal. Things began to unravel soon thereafter.
February brought accusations by MAG that its joint venture partner and would-be acquirer was withholding information that MAG deemed critical to the valuation process being conducted in conjunction with Fresnillo's takeover bid. The intent of this procedure, mandated under Canadian securities law, is to protect minority shareholders in these sorts of takeover situations.
For whatever reason, Fresnillo has stonewalled ever since, and on Monday it walked. The takeover offer's off the table.
I think this spat over the valuation process is a distraction from the essential reality of the situation. Just look at what Fresnillo said in its offer letter on December 1:
We have given considerable thought to the price that we are prepared to offer for the MAG shares and have no intention of amending the price based on discussions with MAG or based upon the results of the formal valuation.
Fresnillo wasn't bluffing, and could clearly care less about MAG's Independent Committee and its findings.
Let's take this for what it is: a low-ball bid that always had low odds of success. Fresnillo made its offer at a time of extreme disruption for the markets in general, and for the mining juniors in particular. The company has been patiently exploiting its namesake property, the largest primary silver mine in the world, since the 16th century. Time is on Fresnillo's side. It will almost certainly make another move on MAG somewhere down the road, but only on its own terms.
There's a broader lesson to be learned here for investors in mining juniors. When your corporate exit strategy focuses on selling out to a major like Vale (NYSE: VALE ) or BHP Billiton (NYSE: BHP ) or Barrick Gold (NYSE: ABX ) , you might want to make sure that there's more than one likely bidder. Without that, you lose loads of leverage.
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