Minmentals Resources failed bid for Equinox holds valuable lessons - experts
Shanghai. May 12. INTERFAX-CHINA - Minmetals Resources Co. Ltd. (MMR) bid for Canadian miner Equinox Minerals Ltd. (Equinox), though ultimately unsuccessful, may serve as a cautionary tale for other state-owned firms eyeing overseas investment, a number of industry experts have told Interfax.
On April 4, MMR announced its CAD 6.3 billion ($6.55 billion) bid for Equinox. The Canadian firm stated its opposition to the bid on April 7 and branded the timing as "clearly opportunistic," a reference to the drop in share price of Equinox following its attempt to buy Canada's Lundin Mining Corp. The firm's shares fell nine percent to CAD 5.73 ($5.96), and continued to drop to a low of CAD 4.84 ($5.03) in March.
When the dust settled, MMR had lost out to the world's largest gold producer, Barrick Gold Corp. (Barrick). On April 25, Barrick announced its offer of CAD 7.3 billion ($7.59 billion) for Equinox.
Was MMR being pragmatic or careless when it let this potentially lucrative deal slip through its hands?
Xue Qiuzhi, associate dean at the School of Management at Shanghai's Fudan University, believes MMR used sound economic reasoning to guide it from the start. Xue noted that MMR's parent company, China Minmetals Corp., has a team solely tasked with originating overseas investment opportunities, and that the team "...assessed the situation and chose their timing well. Equinox's share price had been falling steadily: it was the prefect time to make an offer."
Indeed, MMR's offer was 23 percent higher than the closing price of Equinox shares on April 1.
MMR is listed on the Hong Kong Stock Exchange, another plus according to Xue. Listing on a stock exchange outside of mainland China is a prudent move that can help dispel the concerns of overseas firms, Xue told Interfax. "The HKSE has stringent listing requirements, which, in this case, gave MMR added credibility and helped mitigate its state-owned background."
"Listing somewhere like Hong Kong before attempting international acquisitions can raise the success rate for state-owned firms," Xue added. "Companies such as China National Offshore Oil Corp. (CNOOC) have also followed this path."
On April 26, MMR officially withdrew its bid for Equinox via an announcement from Chief Executive Officer (CEO) Andrew Michelmore, who stated that Barrick's offer was "above our most optimistic assessment of value " for Equinox.
MMR's speedy withdrawal impressed some experts. According to Xing Lei, a professor at the Central University of Finance and Economics in Beijing, MMR made an informed decision. "MMR is an existing shareholder in Equinox, with a 4.2 percent stake," said Xing. "As such, they have better insight into Equinox's true value."
Xue said the move showed "a coming of age for China's companies: before, state-backed firms would simply continue to raise their offer price, using funds afforded them from the central government."
China's central government has many supportive policies for state-owned firms seeking overseas investment, such as long-term bank loans and low interest rates. Yet, Xue believes that such policies, though helpful, are no substitute for fostering better relations with the outside world. "China raised the issue of relaxing trade restrictions on Chinese investments at this week's China-US talks in Washington," Xu said. "Such talks are a good way to foster positive relationships with other countries."
- KHM