12 minutes ago by Thomson Reuters
-- The author is a Reuters Breakingviews columnist. The opinions expressed are her own --
By Wei Gu
HONG KONG, April 8 (Reuters Breakingviews) - Minmetals Resources' <1208.HK> bold $6.6 billion bid for rival Equinox <EQN.TO> <EQN.AX> has provoked an equally bold rejection. While the Chinese miner's bid came at a premium, the target's board seems intent on proceeding with a bid for another copper miner, Lundin Mining. Minmetals' proposal looks more attractive than Equinox's original scheme. But for now, Equinox can do better by not having a deal at all.
Equinox said Minmetal's bid was "clearly opportunistic", and it is right. The Chinese zinc producer pitched a 23 percent premium to Equinox's close on April 1, the last trading day before the informal offer. But that is flattered by the fall in Equinox's shares since it launched its bid for Lundin <LUN.TO>. Take the 20-day average price before the original offer, and the premium shrinks to just 9 percent.
What Equinox has achieved is to give shareholders a plausible alternative to an expensive deal. Lundin, a Canadian copper miner, is highly priced at an enterprise value of 7.3 times 2011 EBITDA, higher than Equinox's 6.8 times and the industry average of 5.4 times, according to RBC Capital Markets. Synergies look thin. It would also leave Equinox highly indebted, with an extra $3 billion of debt.
Minmetals has yet to prove investors wouldn't be better just going it alone. Minmetals' offer is 6 percent lower than its standalone value, with no takeover premium, according to RBC Capital. Minmetals may argue a premium over the pre-Lundin market price is more meaningful. Factor in a 20 percent sweetener on top of that, and Minmetals needs to raise its offer by 10 percent to C$7.7 ($8) a share to make the deal really attractive.
The wrinkle is timing. Equinox shareholders are now due to vote on the Lundin bid on April 25. While that deal hardly looks like a knockout, as Equinox shares have fallen 9 percent since it was announced, investors may decide to follow management regardless. That gives Minmetals two weeks to put in a formal, sweetened offer, or risk being left in the cold. The Chinese miner has proved it is brave -- now it must be fast too.
