Goldcorp Sees No Rival for Osisko in ‘Changed’ Industry

Mar 26, 2014 10:27 am ET

(Updates share prices in eighth paragraph.)

March 26 (Bloomberg) -- Goldcorp Inc. Chairman Ian Telfer said he doesn’t expect anyone to top his company’s hostile C$2.82 billion ($2.53 billion) bid for Osisko Mining Corp. as rival producers remain deal-shy following writedowns on past takeovers.

“The competitive landscape has changed dramatically, it’s just gone away,” Telfer, 68, said yesterday in an interview at Bloomberg’s Toronto office. Goldcorp, the second-largest gold producer by market value, doesn’t want to bid against itself, he said. “We don’t see a need to change our price.”

Goldcorp’s cash-and-stock bid for Osisko is currently valued at C$6.40 a share, 12 percent less than Osisko’s share price, suggesting investors anticipate a higher offer.

Goldcorp’s bid represented a 15 percent premium to Osisko’s shares when it was announced Jan. 13. While that looks small compared with past deals in the industry, it’s probably close to the sort of premiums gold investors should expect in the new environment, Telfer said yesterday. Of 91 gold-mining deals bigger than $200 million in the last 10 years, more than half had premiums paid of more than 25 percent, according to data compiled by Bloomberg.

“The world has changed,” Telfer said. “These high premiums that many people paid in 2006, ’07, ’08 are going away, and have gone away.”

Additional Time

Osisko has rejected the offer as too low and is looking for alternatives. The Montreal-based company, which operates the Canadian Malartic operation in Quebec, has signed confidentiality agreements with “lots” of interested parties and also may continue as a standalone entity, Osisko CEO Sean Roosen said in a March 20 interview.

Osisko got additional time to consider its options after filing a suit to stop the takeover. As part a March 3 settlement of the suit, Goldcorp will get access to its target’s information if Osisko announces another transaction, or by April 1 at the latest. Goldcorp committed not to buy any Osisko shares under the offer until April 15.

Osisko fell 2.5 percent to C$7.23 at 10:24 a.m. in Toronto. Goldcorp fell 1.4 percent to C$28.10.

Telfer said he expects to see more consolidation in the gold-mining industry, which spans hundreds of publicly traded companies, from tiny prospecting outfits to the largest producers.

‘Incredibly Splintered’

“You have this incredibly splintered industry that’s like no other industry,” he said. “Without a huge increase in the price of gold I think that model is unsustainable. Maybe it’s going to shrink down.”

There also should be more hostile bids in the industry because they give shareholders the opportunity to decide for themselves whether a takeover offer is worth accepting, Telfer said.

“I think it’s a very viable way to do it, it shouldn’t be looked upon as a bad thing at all,” he said. “The management teams owe it to the shareholders to let them hear about the bids.”

Telfer, who is also non-executive chairman of Uranium One Inc., a producer of the nuclear fuel in Kazakhstan, said he expects the Russian owners will take the company public again if uranium prices improve.

Russia’s JSC Atomredmetzoloto and its affiliates acquired the 49 percent of Uranium One it didn’t already own last year for C$1.3 billion to take the company private. The move was a response to weak uranium markets following the Fukushima nuclear disaster in Japan in 2011.

“If the uranium price comes back up then they would like to take it public again and be in a position so they can go and acquire assets around the world,” Telfer said.

That may happen within two or three years depending on uranium prices, he said.