First Quantum completes Inmet takeover

May 2013 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

Canadian mining and metals firm First Quantum Minerals Ltd announced on 2 April that, after a protracted and hostile takeover attempt, it has finally completed its successful acquisition of the Inmet Mining Corporation.

First Quantum has agreed to pay around C$5.1bn to complete the purchase of Inmet which will elevate the company to fifth place in the list of the world’s largest copper producers. The newly consolidated firm will have a projected output of 1.3 million tonnes of copper per year by 2018.

The board of Toronto-based Inmet had repeatedly urged the company’s shareholders to reject the advances of First Quantum, which first began courting Inmet in November 2012. As late as mid-March the board sent a letter to shareholders arguing that the value of the offer submitted by First Quantum had fallen since the company began its unsolicited takeover attempt.

However, as a swathe of shareholders accepted the First Quantum offer, Inmet’s board was finally forced to admit defeat on 22 March. The board announced their resignation en masse and advised the company’s remaining shareholders to accept First Quantum’s offer.

By late March, 92.74 percent, or 65.2 million, of Inmet’s shares were tendered to First Quantum, accepting the company’s cash plus stock offer which is valued at around C$72 per share. Inmet’s remaining outstanding stock will be obtained via a compulsory acquisition notice, said First Quantum in a press release.

The final transaction price of $5.1bn exceeds First Quantum’s original bid for Inmet by 10 percent. Philip Pascall, the firm’s chairman and chief executive officer said, “We are delighted that our offer was met with such overwhelming acceptance by Inmet shareholders. We wish to once again thank them for their tremendous support throughout the course of our offer and to welcome them as new shareholders of First Quantum. We look forward to a bright future in which, together, we turn our vision of a new global copper leader into a reality.”

First Quantum’s bid has won government approval under the Investment Canada Act (ICA). The ICA requires companies to prove that any potential takeover of a Canadian company will be of ‘net benefit’ to the country. Approval under the ICA typically only applies to the acquisition of companies or assets by foreign companies; however, as the majority of First Quantum’s shareholders are based overseas, the ICA was applicable in this instance.

One of the key motivating factors behind First Quantum’s bid was the company’s interest in Inmet’s 80 percent stake in the Cobre Panama project. The enormous site is home to one of the world’s largest undeveloped copper deposits. Inmet initially estimated that the cost of developing the region would be around the $6.2bn mark, although First Quantum insisted that those costs can be reduced by around $1bn by utilising in-house expertise, rather than expensive external engineering, procurement, and construction management firms. First Quantum cited the example of its own Sentinel copper project in Zambia, which, although expected to produce slightly less copper, will only cost approximately a third of the projected cost of the Panama project.

It is estimated that the Cobre development, which is the largest of its type ever undertaken in Central America, will contribute to the local GDP roughly as much as the Panama Canal. Once the site becomes active it is expected to deliver approximately 300,000 tonnes of copper per year, worth in the region of $2-3bn.

For the 12 month period ended 31 December 2012, First Quantum generated revenue of $2.95bn and pre-tax profits of $1.14bn. In the same period, Inmet earned $331.1m on gross revenue of $1.2bn. Following the sale announcement, shares in First Quantum fell 3.8 percent to $17.97, leaving the company with a market capitalisation of around $8.6bn.

Richard Summerfield