Norilsk Nickel has become the first Russian company to outmaneuver a formidable foreign rival in a battle for an attractive foreign asset. Although some experts said it paid too much for LionOre, its investment was not designed to gain immediate benefits but rather to lay the groundwork for future expansion.
LionOre is an international nickel concentrate producer with operations in Canada, Western Australia, South Africa and Botswana and a gold mine, Thunderbox, in Western Australia. It also produces copper, cobalt, platinum-group metals and gold.
Norilsk Nickel is the largest mining and metals company in Russia, the world's largest producer of nickel and palladium, and one of the world's largest producers of platinum and copper.
The battle began in May, when Norilsk Nickel offered $4.7 billion for LionOre, $700 million more than Xstrata, a global diversified mining group with headquarters in Switzerland.
Xstrata countered with an offer of $5.6 billion, which LionOre's board of directors advised the company's shareholders to accept.
But Norilsk Nickel raised its bid to $6.4 billion, and Xstrata refused to exercise its right to match the increased offer, claiming that the Russian company was paying too much for the Canadian asset.
The only question left unanswered on June 28, the deadline for Norilsk Nickel's offer, was how many LionOre shares the Russian company would receive. It turned out that LionOre's shareholders considered the Russian offer very lucrative and voted to sell Norilsk Nickel a 90% stake. The offer was then extended until July 10, so that the owners of the remaining 10% would be able, if they wanted, to sell their shares to the Russian company.
Previously, the largest Russian acquisition abroad was U.S.-based Oregon Steel Mills, which Russia's largest steel producer, Evraz, bought for $2.3 billion earlier this year.
Norilsk Nickel paid nearly three times more for the Canadian asset, setting a new record on the mergers-and-acquisitions market. More importantly, few other Russian metals companies have dared to take part in comparable battles for foreign assets, and those that have tried have frequently lost.
Last year, the Russian steel giant Severstal tried to merge with the world's second-largest steelmaker, Arcelor, for which it offered $13 billion, in order to create the world's largest steel group. But Arcelor shareholders rejected the deal, clearing the way for a takeover of the Luxembourg-based company by the world's largest steel company, Mittal Steel.
Norilsk Nickel has won its battle, but many analysts think it paid too much. They argue that LionOre was ready to sell to Xstrata for a smaller sum. But the experts on the sector note that the Russian company made the purchase with a strategic goal in mind.
The metals and mining sectors have entered a new stage of mergers and acquisitions, which is increasing the concentration of assets and capital. The global market will soon be divided among several global players, such as BHP Billiton, Anglo American, Rio Tinto, Arcelor Mittal, and Xstrata.
Norilsk Nickel, with the support of the Russian government, also wants to become a diversified global group in its sector. LionOre was one of the few remaining independent players with access to the North American market.
Therefore, its acquisition will not only increase Norilsk Nickel's share of the global market of non-ferrous and precious metals, but also strengthen its strategic position.
Had the Russian metals company lost the battle for LionOre, it would have had to bid for other individual mining assets, eventually paying much more for them than it paid for the Canadian company.
Moreover, LionOre has a considerable potential for growth. It plans to increase nickel output by nearly 150% over five years, from 34,000 metric tons in 2007 to 80,000 tons in 2012.
The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.
