17 January 2011

Will M&A value return to Canada in 2011?

Is 2011 the year which will herald a resurgence of larger value transactions targeting companies based in Canada? If the events of last week are anything to go by then 2011 could well be the year in which the country’s M&A activity returns to pre-crisis form.

In just one week three deals were announced which were worth a combined total of more than CAD 15,000 million; one of these was worth more than the top deal by value with a Canadian target in 2010, being the public takeover of Red Back Mining by Kinross Gold Corporation for CAD 7,100 million completed in September 2010.

Bill Quinn, head of M&A at Toronto Dominion Bank, one of Canada’s leading lenders, summed up the situation nicely when talking to Reuters last week; Quinn told the news provider that while there were a number of billion-dollar deals targeting Canada-based companies in 2010, to have three in the first couple of weeks of 2011 certainly bodes well for its M&A market this year.

In 2010 the value of deals targeting Canada-based companies fell back 11 per cent to USD 116,447 million from USD 130,954 million in 2009, according to Zephyr. The volume of transactions involving Canadian targets slipped at a slower rate of 6 per cent over the 12 months to 4,095 deals from 4,373 deals, indicating that while value was shaved off M&A deals, the appetite for deal making did not wholly disappear.

The 2011 Canadian deals in question involved the mining industry and retail sector; the first big announcement of the week came late on the 11th January when US mining giant Cliffs Natural Resources revealed it wants to take Montreal-headquartered mineral explorer Consolidated Thompson Iron Mines private in an all-cash deal worth CAD 4,900 million including debt in order to gain more exposure to Asian end-markets.

Consolidated Thompson is billed as one of the fastest developing iron ore producers in North America with over 580 million tonnes of reserves and assets of CAD 1,448 million as at 30th September. With open pit iron ore mine Bloom Lake, two adjacent development properties and established commercial relationships with leading Asian players such as Chinese steel producer Wuhan Iron and Steel, it is understandable why it may be viewed as an attractive target and at the moment it remains to be seen whether a bidding war will break out for the company.

Not to be outdone by the iron ore sector, the copper industry hit the headlines just a day later when Canadian base metals explorers Lundin Mining and Inmet Mining announced a business combination to create an international copper player by way of a merger of equals valued at around CAD 9,000 million.

Symterra, the new corporation formed through the amalgamation is expected to have the potential to produce over 500,000 tonnes of copper annually by 2017 at costs within the lowest quartile, and it should also have exposure to zinc and other base metal markets from existing operations. Considering copper is used in anything from steelmaking to power, there is no doubt that emerging market demand must have played a part in this merger.

Finally, and by no means least, the retail sector came into play when Target marked its first ever attempt to expand outside the US by snapping up leases on up to 220 stores in Canada from Zellers, a subsidiary of Hudson’s Bay Company, for CAD 1,850 million – resulting in greater competition in the long-term.

Considering all this recent activity, Canada may be a region to watch.

© Zephyr