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HudBay, Lundin walk away from merger
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24th February 2009
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TORONTO (miningweekly.com) – Canadian base-metals miners HudBay Minerals and Lundin Mining have agreed to release each other from any obligations related to a merger agreement announced late in 2008, the firms announced on Monday evening.

On Tuesday morning, HudBay shares were up 10,9%, at C$5,30 apiece, by 10:18 in Toronto. Lundin fell 12,5%, to C$0,70 a share.

While the transaction was overwhelmingly approved by Lundin investors last month, it has been met with opposition from HudBay shareholders, which argued that the deal would result in a change of control of the firm, and that HudBay was misusing its strong balance sheet to bail out cash-strapped Lundin.

The companies had hoped to close the takeover by January 28, but an Ontario Securities Commission (OSC) ruled in January that HudBay must allow its shareholders to vote on the plan.

From the outset, certain HudBay shareholders voiced strong opposition to the merger, with two funds – SRM Global Master Fund and Corriente Master Fund – embarking on a proxy battle to have the firm's board replaced, and merchant bank Jaguar Financial asking the OSC to overturn TSX approval for the deal.

HudBay shares fell about 40% on the day the deal was announced, but rebounded strongly when the OSC announced its decision, implying that the market did not expect the deal would succeed.

Still, despite vocal opposition from some quarters, HudBay argued that there was support – albeit muted – for the merger plan.

However, in a statement to announce the cancellation of the deal, HudBay Minerals CEO Allen Palmiere said that the firm had received “very strong feedback” indicating that shareholders would not approve the merger.

“The decision to terminate the transaction was not an easy one for the board," Palmiere said.

"However, after hearing from many of our shareholders over the last three months and considering the market reaction to the OSC decision, we believe this is in the best interests of the company and its stakeholders in the current circumstances.”

HudBay will retain the 19,9% ownership stake in Lundin Mining that it bought through a private placement in December, as a precursor to the takeover.

Lundin has also agreed that HudBay may nominate one director to its board, and will have the right to maintain its ownership level in the event of equity issues by Lundin, both as long as HudBay owns 10% or more of the firm,

HudBay will also have a right of first offer if Lundin sells any material assets for the six months after the termination of the deal.

Finally, both firms have agreed to release each other from all claims arising from the arrangement agreement; Lundin said earlier this month that it had issued a breach of agreement notice, and that it believed it had the right to terminate the agreement immediately, and was due a break fee of $2,5-million.

"We are pleased to have agreed this release with HudBay. It seemed the only sensible course of action and it now enables Lundin to get on with its business without any on-going uncertainty or restrictions," commented Lundin CEO Phil Wright.

 

Edited by: Liezel Hill

 

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