OSC gives HudBay shareholders the vote

The Ontario Securities Commission (OSC) has taken a firm stand on the side of shareholder’s rights.

The OSC reversed an earlier decision by the TSX that gave the green light to HudBay Minerals’ (HBM-T, HBMFF-O) issuance of 157.6 million new shares – double its current amount — so that it could make an all share acquisition of Lundin Mining (LUN-T, LMC-N).

But the OSC ruled HudBay shareholders must have their say before such extreme share dilution can take place.

Now that a vote must be held HudBay will have its work cut out for it.

Many shareholders, most notably Jaguar Financial (JFC-T) — which holds roughly a 1% stake in HudBay — fought hard against the prospect of taking over Lundin.

Hudbay announced its offer for Lundin back on Nov. 21. The deal would see Hudbay issue 0.3913 of a share for each Lundin share –valuing Lundin shares at $2.08 apiece, which was a 32% premium at the time. The agreement also commits HudBay to loan Lundin $135.8 million to be paid back with 97 million Lundin shares

Beyond the heavy dilution, Hudbay shareholders such as Jaguar, balked at paying a premium for Lundin when the company has roughly $300 million in debt and a portfolio of mine’s with narrow to no profit margins.

From HudBay management’s perspective, the deal offers a chance to triple its zinc reserves and double its copper reserves at a severely discounted price thanks to the current bearish state of the market.

But the OSC decision comes down clearly on the side of shareholders over corporate expedience. It said fair treatment of investors is “fundamentally more important” than a corporations ability to close a deal cleanly.

And the decision went further, saying the market itself “would be significantly undermined by permitting the transaction to proceed without the approval of the shareholders of HudBay.”

Jaguar Financial had brought the matter before the OSC, and after the ruling said it was withdrawing its rival offer to acquire HudBay.

The speed with which the OSC handed down the decision — it only took the matter into review at the beginning of the week — was tied to the fact that Lundin shareholders are to vote Monday and the two companies were planning to close the deal next Wednesday.

The OSC also said HudBay shouldn’t use its 19.9% stake in Lundin to vote in favour of the deal at the Lundin shareholders’ meeting.
But whether HudBay heeds the OSC’s recommendation with regards to its vote, there is little doubt that Lundin shareholders will approve the offer.

In Toronto on Jan. 23, HudBay shares were up 85¢ or 24% to $4.37 on 13.6 million shares traded. Lundin shares fell 27¢ or 23% to 92¢ on 28.7 million shares traded, and Jaguar shares were flat at 10¢ on 1,500 shares traded.