NEW YORK (TheStreet) -- Canadian gold producer Osisko Mining Corp. has rejected Goldcorp Inc.'s C$2.6 billion ($2.4 billion) bid, and warned it may use a poison pill defense to find an alternative to an offer the company labeled as hostile. Goldcorp shares were rising 1.1% to $23.43.
"Goldcorp's offer significantly undervalues Osisko's world-class Canadian Malartic mine, and the rest of the company's portfolio of high-potential projects in North America," Montreal-based Osisko said. "The premium offered by Goldcorp, as well as the transaction multiples implied by the offer, are both significantly below the relevant precedents."
Osisko indicated its opposition to the bid as early as Jan. 15, when Goldcorp unveiled its unsolicited offer of 0.146 of a share and C$2.26 in cash for each Osisko share. The offer represented a 15% premium to Osisko's closing price the day before the bid, but quickly slipped to a discount as investors bid up the target in expectation of an improved offer.
Goldcorp wants control of Osisko's Malartic gold mine in Quebec, which has proven and probable reserves of 10.1 million ounces of gold. The mine produced 475,277 ounces of gold in 2013 at an average cost of C$760 per ounce.
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Osisko said it expects output from the mine to increase and costs to fall in the coming years. Goldcorp's offer was " opportunistically timed to occur before Canadian Malartic enters what Osisko expects will be its most productive years," the target said.
Goldcorp is one of a handful of large gold miners that has the financial strength to take advantage of depressed gold prices that have hit the valuations of many producers. Osisko shares were down 36% over the twelve months prior to Goldcorp's bid.
Goldcorp said on Jan. 15 it had spent more than five years seeking a friendly deal with Osisko, which it first approached in August 2008. It described those efforts as a "history of frustrated attempts," but said it still hoped to engage with Osisko's board.
Osisko gave no indication that it was interested in meeting with the bidder and said it was ready to trigger a poison pill defense to gain time to "pursue competing bids or alternative strategies."
Osisko claimed it could issue rights attached to its existing shares because Goldcorp's bid runs until Feb. 19, a 35-day duration that is below the 60-day minimum that would make the offer a "permitted bid" under the terms of Osisko's shareholder rights plan. The poison pill could be dispensed as soon as Jan. 27, though Osisko's board said that it had decided to defer the rights issue for the time being.
Osisko's shareholder rights plan, adopted in May 2010, allows the company to issue a discounted new share for each existing share in the event that a hostile bidder acquires a 20% stake or where a takeover bid is not a permitted bid.
Goldcorp said it will wait to see Osisko directors' circular before making further comment on its offer.
Osisko has tapped BMO Capital Markets and Maxit Capital L Pfor financial advice. Its Canadian legal counsel is Bennett Jones LLP. A Skadden, Arps, Slate, Meagher & Flom LLP team of Christopher Morgan, Michael Acedo and Lyndsey Kiser are providing advice on U.S. law.
A special committee created by Osisko to assess the bid is taking legal advice fromStikeman Elliott LLP.
Goldcorp is taking financial advice from GMP Securities LP and Bank of Nova Scotia. It is taking legal counsel from Cassels Brock & Blackwell LLP's Paul Stein, Jeff Roy, Pollyanna Lord, Jennifer Hansen, Alexis Bowie and Jamie Litchen, and from Neal, Gerber & Eisenberg LLP's David Stone, John Koenigsknecht, Betsy Thelen, Beth Rosner, Andrea Despotes and and Chloe Milstein.
-- By Paul Whitfield in New York