ArcelorMittal-Nunavut Join Forces - Analyst Blog

Finally, the Baffinland battle comes to an end with rivals ArcelorMittal (MT) and Nunavut Iron Ore Acquisition Inc. agreeing to team up under the ArcelorMittal offer.

As per the agreement, ArcelorMittal and Nunavut Iron will own 70% and 30% of Baffinland, respectively, upon successful completion of the ArcelorMittal offer and provided the second step acquisition transaction is completed.

ArcelorMittal is providing Baffinland shareholders with an increased offer of C$1.50 in cash for 100% of Baffinland's outstanding common shares. The increased offer represents a premium of approximately 36% to the original ArcelorMittal offer price of C$1.10 per common share, and a premium of 168% to the trading price of the common shares prior to Nunavut Iron's original unsolicited offer in September 2010.

The takeover bid had been dragging from a long time. ArcelorMittal was trying to acquire 100% of Baffinland for C$1.40 a share, valuing the company at about C$550 million ($550 million) as it pursues its undeveloped iron ore deposit in Canada's Arctic.

Nunavut Iron Ore Acquisition Inc., backed by private equity and a Canadian management team, offered C$1.45 a share, but only for 60% of the company. The bid included a proposed warrant that would allow shareholders to earn partial share in the new company.

ArcelorMittal claimed that Nunavut's bid is coercive, as it provides no certainty and transparency to shareholders. Nunavut later revised its bid and is now offering C$1.45 a share plus one exchange right per common share for 60% of the company.

The two companies have fought for the control of Baffinland since September and offers for the Canadian iron ore explorer had nearly doubled by the year end.

By teaming up, we believe both ArcelorMittal and Nunavut Iron are providing a more attractive and certain offer to Baffinland shareholders.

Currently, ArcelorMittal has a Zacks #3 Rank (Hold) for the short term and a Neutral recommendation for the long term.