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Goldcorp Inc Raises Offer for Osisko

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In a previous article, I had suggested that instead of getting into a bidding war, Goldcorp (NYSE: GG  ) might prefer to walk away from the Osisko Mining deal, especially due to the political hurdles. However, Goldcorp has actually done the opposite. It has raised its offer for Osisko, indicating that the company attaches significant value to Osisko's Canadian Malartic mine.

Goldcorp sweetens the deal
Late last week, Goldcorp sweetened the deal for Osisko Mining. The company has now offered 0.17 of a Goldcorp common share and C$2.92 in cash for each Osisko common share. Under the previous offer, Goldcorp had offered 0.146 for a Goldcorp common share and C$2.26 in cash for each Osisko common share. The total consideration for Osisko now stands at C$3.6 billion, up from the C$2.6 billion Goldcorp had offered in January.

Goldcorp made the decision to raise its offer after conducting due diligence, which according to Goldcorp President and CEO Chuck Jeannes confirmed the technical and financial merits of the company's decision to acquire Osisko. Jeannes noted that Goldcorp's increased offer represents a straightforward and superior value for Osisko shareholders.

Indeed, when compared to Yamana Gold's (NYSE: AUY  ) complex deal announced earlier this month, Goldcorp's offer is simple and straightforward. Under a complex deal, Yamana has offered to acquire a 50% stake in Osisko's mining and exploration assets. Yamana's offer values Osisko at C$7.60 per share, which isn't far below what Goldcorp has offered. But Yamana's deal assumes a value of C$3.35 per share for the new Osisko, which is debatable. Given this scenario, Osisko shareholders would be tempted to choose Goldcorp's increased offer over Yamana's deal even though the latter has been endorsed by Osisko's management.

The raised offer also confirms the value Goldcorp attaches to the Canadian Malartic mine. Goldcorp and other major gold miners such as Barrick Gold (NYSE: ABX  ) are focused on lowering their all-in sustaining costs as they adjust to the new gold price environment.

What about the political hurdles?
One of the reasons I had cited for Goldcorp not raising its offer was political hurdles. Politicians in Quebec, where Osisko is based, favor protecting local companies from hostile takeover bids. However, a member of Quebec's recently elected Liberal Party told the Financial Post that it is too late for the Quebec government to intervene in the takeover battle for Osisko.

Also, Goldcorp plans to keep Osisko's headquarters in Montreal should it win the takeover battle. The company is likely to keep the Montreal office as its new Quebec regional headquarters. That should certainly quench some of the opposition to the deal.

Goldcorp's new offer not too generous, but attractive
It must also be noted that Goldcorp's raised offer is not very generous, considering that the company is not offering a significant premium over Yamana's offer. By offering just C$0.05 per share more than what Yamana has offered, Goldcorp has given itself room to raise its offer even more in case there is a counter bid from Yamana. Remember, Goldcorp has time and again said that it will not overpay for Osisko. 

Certainly, that is not something its shareholders want. After raising its initial offer last week, Goldcorp saw a sharp decline in its share. The company's shares fell more than 4%, which indicates that shareholders don't want Goldcorp to get into a bidding war and end up overpaying for Osisko. It will be interesting to see if Goldcorp raises its offer further in case there is a counter offer from Yamana.

While Osisko's management favors a deal with Yamana, the key question is whether the company's shareholders also think the same. As I noted before, Osisko shareholders might be tempted to go for Goldcorp's simpler offer, which has also been highlighted by Godcorp's CEO. On the other hand, the offer from Yamana would allow Osisko shareholders continued exposure to the Canadian Malartic mine. Yamana's offer would be very attractive if gold prices were to appreciate significantly. However, that is not likely to be the case as I have argued in previous articles and therefore the raised offer from Goldcorp is a better option for Osisko shareholders.

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Varun Chandan

I have a Master in Finance degree from IE Business School in Madrid. I use the top-down approach when it comes to investing. I like to analyze macroeconomic factors and how they impact individual companies.

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