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HudBay-Lundin deal pressured at OSC hearing

19/01/09

By Cameron French

TORONTO (Reuters) - HudBay Minerals began a defense of its controversial C$550 million ($440 million) bid for fellow base metals producer Lundin Mining on Monday, trying to prevent a key shareholder vote that many think would scuttle the deal.

The hearing -- before an Ontario Securities Commission panel in Toronto -- was called because of a challenge from dissident HudBay shareholder Jaguar Financial , and precedes a separate but parallel Ontario Superior Court challenge that will begin on Friday.

Jaguar, along with a small but powerful group of HudBay shareholders, has criticized the all-stock deal as being a foolish risk for HudBay, which mines copper and zinc mostly in western Canada and boasts a cash position of more than C$800 million.

The market has also given it a resounding thumbs-down, as HudBay's shares are down about 32 percent below their level before the friendly deal was announced in late November.

Under the deal, HudBay would offer 0.3919 of a share for each Lundin share, which at Monday's prices, valued Lundin's stock at $1.41 a share. Lundin was down 8 Canadian cents at C$1.23 on the Toronto Stock Exchange on Monday.

TSX RULES CHALLENGED

Jaguar has opposed the takeover from the beginning and sought the OSC hearing to challenge the Toronto Stock Exchange's decision to conditionally approve the transaction and allow HudBay to issue a large amount of common shares without forcing a HudBay shareholder vote.

Unlike other major exchanges, TSX rules allow for a company to issue more than 25 percent of its stock to buy a publicly listed company. As part of the Lundin takeover, HudBay will double its outstanding shares.

Jaguar is requesting an order forcing HudBay to hold a shareholder vote on the issue before the deal closes, which is expected in February.

George Topping, an analyst at Blackmont Capital, said calling such a meeting would likely prove fatal to the takeover plan.

"My understanding from talking to many of the shareholders is if this goes to a vote before the Lundin transaction is consummated, then the takeover would be rejected by HudBay shareholders," he said.

However, he said he doubts a meeting will be called.

"I think, unfortunately, it goes through," he said.

At the hearing on Monday, Jaguar chairman and chief executive Vic Alboini faced cross examination from lawyers for HudBay and Lundin. In a sometimes testy exchange, Alboini called the TSX process for approving takeovers a "black hole'

The call for a change to the TSX policy on share issues has drawn support from the Ontario Teachers' Pension Plan, which is one of Canada's largest fund managers. Teachers' has written to the TSX, urging it to change its regulations.

The OSC hearing is expected to last until Wednesday, but HudBay will be in Ontario Superior Court on Friday to face a separate challenge from two key shareholders.

Hedge fund SRM Global Master Fund LP, which is HudBay's largest shareholder, along with Corriente Master Fund LP have asked the court to force HudBay to hold a shareholder meeting ahead of the transaction close to consider replacing HudBay's board.

Responding to a previous request, HudBay has called a shareholder meeting for March 31, but that would take place after the Lundin deal closes.