HudBay takeover of Lundin unlikely to be blocked by challenge: analyst

TORONTO - HudBay Minerals Inc.'s (TSX:HBM) friendly takeover of Lundin Mining Corp. (TSX:LUN) is unlikely to be blocked by a dissident shareholder group's legal challenge and is ultimately in the best interests of shareholders anyway, says a mining analyst.

Two hedge funds that together own approximately 13 per cent of HudBay's stock have filed an application in Ontario Superior Court to force a shareholder vote on the $814-million deal and an order to block the takeover until that happens.

But the challenge is similar to one faced by Goldcorp Inc. (TSX:G) when former CEO and shareholder Robert McEwen failed in a legal bid to require shareholder approval for its acquisition of Glamis Gold Ltd. in October 2006, said the analyst, who spoke on condition of anonymity.

"(HudBay) kind of liked what happened there because it was quick and final, and they feel they're just taking advantage of securities regulations which don't require a vote," the analyst said.

The dissidents, Monaco-based SRM Global Master Fund LP and Texas-based Corriente Master Fund LP, also called on HudBay to elect a new board of directors prior to the closing of the proposed merger.

"HudBay has oppressed, unfairly prejudiced and unfairly disregarded the applicants' rights and interests and the rights and interests of the other holders of common shares of HudBay," the applicants said Monday in a statement.

SRM and Corriente, among others, have protested HudBay's decision to take advantage of Toronto Stock Exchange rules that allow companies to issue large quantities of stock for takeovers without first getting shareholder approval.

Jaguar Financial Corp. (TSX:JFI), a Toronto-based merchant bank , has taken its protest to the Ontario Securities Commission. The OSC is scheduled to hold a hearing on that on Jan. 19.

The analyst said it's obvious why HudBay would want to push ahead with the deal without first holding a shareholder vote.

"There'd be a lot of opposition (if a vote was held). It'd be a lot cleaner for HudBay if they just ran the thing through," he said.

Canada is one of the few jurisdictions that allow large numbers of shares to be issued without shareholder approval. The TSX reviewed its rules in 2007 but didn't make any changes.

The analyst said shareholders are worried about the health of Lundin's balance sheet in the short run, but the long-term benefits of the merger are obvious.

"I think they certainly increase their production, they get some better assets, they are more viable for the long run. You have to look beyond '09 and even well into 2010 before you really start to see benefits, but I think long-term it does position them as a stronger company."

He added that the priorities of shareholders don't always mesh with the long-term priorities of the company.

"If you're a portfolio manager and your focus is this quarter, what do you care what's going to happen beyond that? So it's just a matter of priorities and for a lot of these portfolio managers their priorities are much more short-term than what a company's would be."

HudBay has said it will "vigorously oppose" the application by SRM and Corriente.

In November, HudBay announced the agreement to buy Lundin in a friendly deal that will create one of Canada's biggest publicly traded base-metals companies.

Under the deal, Vancouver-based Lundin will become a wholly owned subsidiary of HudBay, which is offering stock valued at $814 million when the transaction was announced in November.

The agreement will require the approval of two-thirds of Lundin's shareholders, who will vote on the deal on Jan. 26.

HudBay, long thought to be a takeover target, is a Toronto-based integrated mining company with its main operations in northern Manitoba and Saskatchewan, plus other operations in Central America.

Lundin, an active buyer in recent years, has been active primarily in Portugal, Spain, Sweden and Ireland as well as the Congo.

HudBay is offering 0.3919 of a common share for each Lundin share. Based on HudBay's stock price before the announcement, the offer is worth about $2.08 per Lundin share.

Shares of HudBay were up 11 cents or 3.2 per cent to $3.54 while shares of Lundin were up nine cents or 7.2 per cent to $1.34 in Tuesday trading on the TSX.