OTTAWA — A private equity investor attempting to gain a majority stake in Baffinland Iron Mines Corp. (TSX:BIM) has asked regulators to throw out the company’s latest shareholder rights plan.
The challenge by Nunavut Iron Ore Acquisition Inc. follows a move by ArcelorMittal to increase its friendly takeover offer for Baffinland to $1.25 per share, up from an earlier offer of $1.10. The new bid values the company at about $492 million.
Nunavut Iron, a subsidiary of the Energy & Minerals Group, has offered $1.35 per share, but has limited its offer to only the number of shares needed to increase its stake to 50.1 per cent of the company.
ArcelorMittal’s offer is for all of Baffinland’s outstanding shares.
Daniella Dimitrov, vice-chairwoman of Baffinland, which adopted a new shareholders’ rights plan on the weekend, said Nunavut’s offer is really a bid for just 39 per cent of the company’s shares given the number it already holds. As of Dec. 16 it held about a 10.5 per cent stake in the company.
“We view that as being a coercive bid because it is a partial bid that is being made to shareholders,” Dimitrov said.
“Therefore we determined to adopt the shareholder rights plan to protect shareholders.”
“It is virtually impossible to justify why the rights plan is in place at all,” Walter said in an interview.
“The claim by Arcelor is that their bid is superior to ours. If that’s the case why is Baffinland putting a rights plan in place to deal with a so-called inferior bid.”
“In actually fact what the market is telling us — because it is trading well above the revised Arcelor bid — is that our bid is viewed by the market as providing greater value,” he said.
Baffinland stock closed down a penny at $1.31 on heavy volume of more than 9.2 million shares on the Toronto Stock Exchange.
ArcelorMittal called the offer by Nunavut Iron coercive because shareholders do not know how much their shares would be worth after Nunavut takes control of the company.
“Nunavut’s offer leaves shareholders with the prospect of being left with thinly traded minority common shares that would unlikely reflect the full value of Baffinland’s assets,” the company said in a statement Monday.
Baffinland stock had traded at 56 cents before Nunavut Iron made its initial offer of 80 cents per share in September.
The Ontario Securities commission has already struck down an earlier Baffinland shareholder rights plan.
In doing so, the regulator said: “Based on the evidence before us, we have concluded that there is no real and substantial possibility that Baffinland will be able to increase shareholder choice by keeping the rights plan in place.”
Under an amended support agreement ArcelorMittal, the world’s biggest steel company and owner of the former Hamilton-based Dofasco, would get a larger break fee of $15.5 million, up from $11 million, and can waive its minimum tender condition of 50 per cent of Baffinland’s shares down to 45 per cent.
Demand for iron ore, used in the production of steel, has returned since the recession, which affected demand for everything from new buildings and vehicles to appliances.
Luxembourg-based Arcelor has been building up its iron ore reserves as it seeks to protect itself against price increases in the metal.
The world’s three biggest iron ore suppliers earlier this year decided to price their contracts on a quarterly basis rather than an annual one, making steel producers more vulnerable to sudden prices changes.
Baffinland is working to develop its Mary River property on Baffin Island, 1,000 kilometres northwest of Nunavut’s capital of Iqaluit. It has proposed an 18 million tonne per year iron ore mine at the location.