Baffinland Iron Mines Corp. recommended shareholders accept a new offer by ArcelorMittal after the global steel giant upped the ante Friday in the takeover war for the Canadian miner.
Baffinland's board of directors said it was recommending the offer by Luxemburg-based ArcelorMittal because a rival offer from Nunavut Iron Ore Acquisition Inc. is only for partial ownership, and could have an adverse effect on the outstanding publicly traded shares.
"If a shareholder tenders to the Arcelor offer they know they'll get $1.40 in cash," said Daniella Dimitrov, the vice-chair of Baffinland's board of directors.
"If a shareholder tenders to the Nunavut Iron offer...at this point in time you don't know what you're going to get because it's dependant on how many shareholders actually tender and if everybody tenders you're only going to get cash for 55 per cent of your shares."
The directors and senior executives of Baffinland as well as Baffinland's largest shareholder, Resource Capital Funds, have entered into lock-up agreements with ArcelorMittal and have agreed to tender their shares and warrants.
On Friday, ArcelorMittal increased its bid to $1.40 per share in cash for Baffinland, which is developing a major iron mine north of Iqaluit. It's also offering 10 cents per warrant, as in its previous offer. The offer values Baffinland at about $550.7-million.
The price offered Friday matches a proposal made by Nunavut Iron, but it is for all of Baffinland's shares. Nunavut Iron, which holds a roughly 10 per cent stake in Baffinland, only wants enough shares to increase its stake in the company to 60 per cent.
Nunavut Iron, a subsidiary of private equity fund Energy & Minerals Group, had originally offered 80 cents cash per share, but increased its own hostile takeover bid to $1.40 per share on Wednesday.
"Our offer ensures shareholders receive 100 per cent cash for all of their shares, rather than cash for just some shares and diluted value for the shares not taken up under the Nunavut offer," ArcelorMittal mining boss Peter Kukielski said in a statement.
Baffinland shares were the most actively traded on the Toronto Stock Exchange early Friday morning. Shares were up 5 cents to $1.43 by mid afternoon.
The two potential buyers are fighting to control Baffinland's Mary River project on northern Baffin Island, about 1,000 kilometres northwest of Iqaluit, which contains several million tonnes of iron ore reserves.
Nunavut Iron said in a brief statement that the company "is considering its options in light of the new offer."
"The Mary River project has great potential if it's developed under strong ownership and there are many shareholders who understand that Nunavut Iron's current bid still provides better value than the ArcelorMittal offer."
Demand for iron ore, which is used to make steel, has bounced back since the recession.