Goldcorp Inc. had no way of crystal-balling Quebec politics when it launched its unsolicited offer for Osisko Mining Corp. in January. But what is now clear is that its hostile bid will land smack in the middle of the next election campaign.
The Parti Québécois's minority government will unveil Thursday what is expected to be an electoral budget. Whatever doubts remained about an election call in March were dispelled with the latest Crop/La Presse survey that indicates a majority is within reach for Premier Pauline Marois. You can already hear the campaign buses revving up.
The coincidence is reminiscent of the 2012 elections, when American retailer Lowe's Cos. Inc. tried to acquire Quebec hardware chain Rona Inc. before withdrawing its proposal in the face of heated opposition that crossed party lines.
Will Osisko become another Rona? And how will the elections affect the battle for the Malartic gold mine, Osisko's only operation?
Quebeckers are quite attached to the Rona hardware stores that are found in just about every corner of the province. The same cannot be said of Osikso. While it is the province's best-known mining company following the controversial expropriation of a Malartic neighbourhood where its open-pit mine was dug, Osisko's economic importance is largely unknown.
As the battle heats up, that may change. Osisko is one of the only three Quebec-owned mining companies that go beyond exploration, the Board of Trade of Metropolitan Montreal pointed out in a press release.
Osisko's market capitalization of $3.1-billion is double that of Rona's. "We are bigger than Quebecor," president Sean Roosen said to a Montreal newspaper. One and a half times bigger, in fact.
While Osisko is spinning its importance to Quebec, Goldcorp is not staying put. The Vancouver-based company just took out a full-page ad in La Presse to showcase its ties to the province with its Éléonore mine and its ties to Laval University.
Goldcorp's pitch, in essence: We are not the mean foreigners.
This public relations battle might have been eclipsed by other election issues. But Quebec is about to publish a long-awaited report from an advisory committee that looked into how to protect companies from hostile takeovers. The non-partisan committee led by CGI executive Claude Séguin held as a premise that hostile takeovers can gut an economy. Hence, companies should have more time and methods to fend off predators. On this, the Quebec business community speaks with one voice. So you can expect politicians to outshout each other as they try to cast themselves as the best defenders of Quebec Inc.
In the end, though, talk is talk. No matter what the Séguin committee recommends, those measures won't come soon enough for Osisko. Hence, the campaign is unlikely to have a big impact on the takeover battle.
What will matter is the Quebec Superior Court hearing that, as of March 3, will look into what was said in a short conversation at a Calgary hotel – and what was made of that information. It is a "he said, she said" type of case on a disputed standstill agreement and on the alleged misuse of the private Osisko data shown to Goldcorp.
Even if Osisko wins, the Montreal-based company will remain in play. Goldcorp chief executive officer Chuck Jeannes has publicly stated he wouldn't give up after a court defeat. "Worse case, we would have to come back in April," he said to The Wall Street Journal. Then there are the short-term traders – which hold an estimated 25 per cent of the shares – who will still look for a rich exit.
Bay Street is discounting the arrival of a white knight in an industry reeling from a sinking bullion price. It may be proved wrong. A source close to Osisko says a number of mining executives have made the trip to Malartic in recent weeks. The company now holds confidentiality agreements with almost every industry player – information Mr. Roosen refused to confirm or to deny in a Globe interview.
The Malartic mine will remain profitable despite bearish forecasts: Gold will average $1,165 (U.S.) an ounce in the fourth quarter, according to the median of nine analyst estimates compiled by Bloomberg; it closed at $1,322 on Monday. As production at Malartic is ramping up, the cash cost per ounce fell to $613 in January.
Even if Osisko doesn't find a suitor, it has other avenues. The company could sell a minority stake to an industry or financial player with an option for the remainder a few years down the road. It could strike a streaming deal to sell, in exchange for an upfront payment, a sizable portion of its production. Osisko already has a royalty partnership with Franco-Nevada Corp., for instance.
Those options might be more palatable to Osisko's management than a Goldcorp takeover. But it will bring little comfort to the Quebeckers who wish to keep what little control they have left over the province's mining industry.