Norilsk Nickel raises bid for LionOre

Russia ’s JSC Norilsk Nickel seems to win a bidding war with rival Xstrata PLC for LionOre, raising its offer for the Canadian gold and nickel producer to US$6.27 billion (EUR4.7 billion)

Xstrata had sweetened its own offer last week to US$5.6 billion (EUR4.1 billion) - a bid that Norilsk said reeked of bad corporate governance, since it incorporated a high breakup fee.

Norilsk said in a statement it would offer to pay 27.50 Canadian dollars (US$25.32; EUR18.85) per share, up from its previous offer of C$21.50 (US$19.42; EUR14.45) per share. Xstrata was offering C$25 (US$22.54; EUR17.12) a share.

"Norilsk Nickel's decision to increase its offer reflects the quality and strategic value of LionOre to our company, which will give us greater scale in key commodities, enhanced geographic diversification and an exciting pipeline of growth projects," said Norilsk Nickel's general director, Denis Morozov.

The company said it would deliver its offer to LionOre's board of directors Wednesday and believes it constitutes a "superior proposal."

Neither LionOre nor Xstrata immediately commented on Norilsk's higher offer.

Analyst Simon Toyne at Numis Securities said the new Norilsk bid was likely to see Xstrata bow out, collecting a breakup fee of some US$280 million (EUR208 million) in the process.

Toyne said the amount Xstrata would have to bid to be successful "leaves little room for value creation, although near-term high nickel prices could allow wiggle room."

Norilsk Nickel, the world's biggest nickel and palladium producer, has made major forays overseas in recent years, acquiring U.S. miners Stillwater Mining Co. and nickel producer OM Group Inc. In 2005 Norilsk, which held a 20 percent shareholder stake in Gold Fields Ltd., backed a hostile takeover bid by South Africa's Harmony Gold Mining Co. that was ultimately unsuccessful.

If it wins its quest for LionOre Mining International Ltd., Norilsk's global footprint will be further expanded - LionOre has operations in Australia, Botswana and South Africa.

Xstrata, meanwhile, outbid Inco Ltd. and copper miner Phelps Dodge Corp. to take over Canadian nickel company Falconbridge Inc. last year.

Norilsk renews its criticism Wednesday of the breakup fee stipulated in Xstrata's previous offer.

It said its new bid had been discounted "to take into account the additional costs arising from the excessive 305 million Canadian dollar break fee payable to Xstrata."

"This break fee has compromised a fair bidding process, and value, which should have been delivered to LionOre shareholders, instead may go to Xstrata," Morozov said.