Jaguar news release re: HudBay MineralsJaguar suggests related and conflicted parties badly mispriced Lundin Transaction
TORONTO, Dec. 9 /CNW/ - Jaguar Financial Corporation ("Jaguar") (TSX:
JFC) today advised fellow shareholders of HudBay Minerals Inc. ("HudBay")
(TSX: HBM) that realistic pricing of the proposed transaction (the "Lundin
Transaction") with Lundin Mining Corporation ("Lundin") (TSX:LUN) would have
given HudBay shareholders a minimum 67% ownership interest in the combined
company.
While presented to shareholders as a so-called merger of equals, the
proposed Lundin Transaction is, in fact, an acquisition of effective control
of HudBay by Lundin insiders and is value destructive for HudBay shareholders.
Allen Palmiere was appointed CEO of HudBay in January 2008, apparently
due to his focus on mergers and acquisitions ("M&A"). He replaced Peter Jones,
the former CEO, who has a proven record as an excellent operator.
While benefitting from his predecessor's management, Mr. Palmiere's
forays into M&A have been a disaster for HudBay shareholders. In a deal with
his long-time friend Colin Benner, Mr. Palmiere led HudBay to acquire Skye
Resources Inc. ("Skye") in August 2008. Mr. Palmiere rewarded Mr. Benner with
more than $6.9 million of HudBay's cash in compensation for six months work
before Skye was acquired by HudBay. HudBay's shareholders lost considerable
value after the transaction as HudBay's share price dropped from $14.79 on the
day prior to the Skye acquisition announcement to $5.23 on the day prior to
announcement of the Lundin Transaction. In his second deal with Mr. Benner,
who sits on the Boards of both HudBay and Lundin, Mr. Palmiere is proposing to
pay a 103% premium to buy a nearly insolvent Lundin.
The serious mispricing of the Lundin Transaction can be attributed to Mr.
Palmiere's insupportable belief that equity values should be ignored in M&A
transactions, as he has repeatedly stated publicly.
In fact, the capital markets are providing excellent opportunities for
cash-rich companies such as HudBay to take advantage of lower equity values in
target companies such as Lundin. Substantially reduced equity values cannot be
ignored; they must be relied upon to price and structure M&A transactions.
Lundin is out of cash, saddled with US$240 million in debt and
presumably, unable to draw on its credit facility. It also has a US$228
million capital and exploration work program through 2009. Lundin has recently
placed a number of mines on care and maintenance or under review due to
unprofitability. HudBay, on the other hand, is cash rich with $844 million in
cash, has no debt and its mines are operating profitably.
In a negotiated M&A transaction, HudBay should receive a premium for its
substantial cash resources while Lundin should have been valued at a discount
due to its financial condition.
The Lundin Transaction, negotiated by Mr. Palmiere and unaccountably and
surprisingly approved by his Board, does not reflect the relative values of
the two companies. On November 20, 2008, the day prior to announcement of the
Lundin Transaction, the two companies had a combined market capitalization of
approximately $1.2 billion, of which 67% was attributable to HudBay and 33%
was attributable to Lundin. Despite these market valuations, the terms agreed
to by Mr. Palmiere give Lundin shareholders slightly more than 50% of the
equity and HudBay shareholders slightly less than 50%. The minimum ownership
position for HudBay shareholders should have been 67% and could have been
adjusted upwards due to HudBay's strong cash position and Lundin's high risk
of insolvency.
With a 67% equity interest held by HudBay shareholders, Lundin
shareholders would receive 0.1932 HudBay shares for every Lundin share.
Instead of paying $2.05 per Lundin share, there would be no premium paid.
Vic Alboini, Chairman and CEO of Jaguar, said: "Mr. Palmiere is proposing
to pay an excessive premium for a nearly insolvent company and turning what
should be a HudBay acquisition of a smaller company into a reverse take-over
with the Lukas Lundin insider group acquiring effective control of HudBay."
Shareholder Value is Better Served By Proposal to Distribute Cash
Creating value for the HudBay shareholders starts with stopping the
Lundin Transaction and returning some cash to shareholders. Jaguar has made
this a priority. If Jaguar's proxy contest or proposed take-over bid is
successful, the current intention is to make a substantial distribution of
HudBay's redundant cash to shareholders and continue its current business with
sufficient working capital under a new senior management team. HudBay would
also explore strategic options which may include M&A transactions that are
value creative, properly structured and attractively priced, unlike the Lundin
Transaction.
Mr. Palmiere has been quoted criticizing the Jaguar plan by stating that
HudBay's "cash is king" and should not be distributed to HudBay shareholders.
For example in the December 9, 2008 edition of Euromoney, Mr. Palmiere is
quoted as stating:
"The Jaguar proposal is designed to strip the company (HudBay) of its
cash. Following, the company as we know it will cease to exist. In this
environment, cash is king."
"If cash is so valuable why is Mr. Palmiere trying to give that cash to
Lundin shareholders in a bailout of Lundin? HudBay's cash belongs to its
shareholders and excess cash should be distributed to HudBay shareholders
rather than all the cash being transferred to Lundin shareholders for little
value," Mr. Alboini said.
Jaguar believes the $844 million in cash in HudBay would be reduced to
$236 million in the Lundin Transaction or $0.77 per share through the proposed
$136 million loan, Lundin's debt of US$240 million, and Lundin's planned
expenditures of US$228 million, to which the loan will presumably be applied.
"This is a glaring, perhaps unprecedented, example of value destruction -
from $5.52 per HudBay share in cash to $0.77 per share," Mr. Alboini said.
"The Lundin fiasco clearly shows that the CEO and the Board must be replaced.
This is a decision for the shareholders."
Concerned HudBay Shareholders
Jaguar has received considerable feedback from various shareholders of
HudBay expressing their views about the Lundin Transaction and the need for a
shareholder meeting. Any concerned shareholder of HudBay who wishes to discuss
the situation may contact Jaguar by emailing info@jaguarfinancial.ca or by
contacting any the following individuals: