Boyd Erman

12:00 EDT Wednesday, September 01, 2010

The market is getting a bit jittery about the possibility that Kinross Gold Corp. won't succeed in getting investor backing for its takeover of Red Back Mining Corp.

The spread between the Kinross bid and the offer price has widened out Wednesday, after a similar move Monday.

Kinross's bid for Red Back is made up of stock and warrants, so the price moves around with shares of Kinross .

Usually, as the closing date of a deal grows closer, the gap shrinks to reflect the shorter time frame and the lessening risk of the deal falling through. But over the past two weeks, the spread has been volatile, moving up as often as it moves down, and Wednesday it is getting wider.

The spread widened steadily from Aug. 17 to Aug. 23, topping out at about 60 cents. After shrinking back in to about 20 cents, it's now up to 45 cents Wednesday afternoon, according to Bloomberg data.

The gap isn't screaming a big problem, but it does have some who are following the deal talking.

Kinross has to hold a vote because of the size of the deal, and it needs a 50 per cent plus one vote majority to go ahead with the transaction. The problem with the deal is the potential dilution for Kinross shareholders, who are paying up to get Red Back's African mining assets.

Monday, the rumour was that Institutional Shareholder Services, an influential firm that helps fund managers decide how to vote, would not recommend support, and that caused the gap to widen, said one investor with a bet on the takeover.

Proxy research firm Glass, Lewis & Co., LLC on Wednesday recommended that Kinross shareholders support the deal. The ISS report is expected soon, said Kinross spokesman Louie Diaz.

"We do not believe the market is jittery," he said in an email, noting that Kinross shares have risen almost 15 per cent since the transaction was announced.

Red Back shareholders are expected to approve the deal because of the premium they are getting. Glass, Lewis also recommended that Red Back shareholders vote for the transaction.

This post has been updated to add details, including the fact Glass, Lewis recommended Kinross shareholders back the buyout.