Osisko's Hostile Rejection of Goldcorp Takeover Bid

What's more hostile, the takeover attempt or the contempt in which the target holds the offer?

Jan 21, 2014 at 10:38PM

There's rejecting a takeover offer, and then there's telling your suitor to go pound salt. Osisko Mining chose the latter route in telling Goldcorp (NYSE:GG) to take a hike.

Screen Shot

Canadian Malartic. Source: Osisko Mining.

In a statement released Monday, the Canadian miner said its rival's opportunistic offer was "financially inadequate" and the premiums it suggested were well below the benchmarks that have been set by previously completed deals. While admitting Osisko has had some barebones discussions with Goldcorp over the past five years, in a conference call afterwards, CEO Sean Roosen said the offers that were made were "value destructive" and the current bid was more of the same. He further charged Goldcorp's best days were behind it while Osisko was ascendant.

Pointing to projects like Pensaquito in Mexico, the Canadian gold miner said Goldcorp's mines carried substantial geopolitical risk, and even those like the Eleonore project in Quebec, Cerro Negro in Argentina, and Cochenour in Ontario have all fallen short of expectations.

Osisko's main asset is its Canadian Malartic gold mine in northern Quebec, and it says replicating the project would not be easy, as it's been developing, building, and expanding it for 10 years, with its first commercial production begun in 2011. Last year the mine's gold output jumped 22%, even as cash costs fell 11%. That's at least part of the reason Osisko says the takeover attempt represents a significant discount to estimates of the price-to-net asset value multiples Goldcorp paid for other large-scale gold producers, including its acquisition of Glamis Gold and Placer Dome.

With gold miners at some of their lowest valuations relative to book in almost a decade, analysts think there is the potential for 2014 in particular to see an onslaught of M&A activity. Both Goldcorp and Newmont Mining (NYSE:NEM) have said they want to make acquisitions to add on low-cost operations, and last month Brigus Gold (UNKNOWN:BRD.DL) agreed to be bought by Primero Mining (NYSE:PPP). That was followed the next day by Asanko Gold announcing a takeover of PMI Gold.

Because of the industry's depressed values, there will be more offers such as Goldcorp's that seek to buy up discounted assets on the cheap. You can't blame them for trying to force a lowball offer through, but if Goldcorp really wants to successfully acquire Osisko, then the miner's going to have to raise its bid, Otherwise, it will continue to receive a chilly reception let alone a hostile response like the one that's just been delivered.

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