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TORONTO - The Noranda Income Fund (TSX:NIF.UN) lost more than seven per cent of its value Thursday after the takeover of the company by global miner Xstrata Zinc fell through.
In TSX trading, Noranda units dropped 29 cents to $3.81, a decline of 7.1 per cent, by early afternoon.
Late Wednesday, Noranda and Xstrata Zinc both issued releases saying the deal had fallen through when the two companies could not reach an agreement over the price of the transaction.
Lisa de Wilde, chair of an independent committee set up by Noranda to consider the offer, said the zinc processor, can deliver more value to unitholders as a standalone company.
"After a difficult process, we are disappointed that we were not able to reach an agreement with Xstrata on the offer price for a potential transaction," she said.
"Although we would have preferred for unitholders to have the opportunity to make individual decisions on the revised offer, the independent committee was challenged to provide its support at the revised offer price put forward by Xstrata."
In late July, Madrid-based Xstrata Zinc — a division of Swiss mining giant Xstrata — offered $3.40 per unit or $127.5 million in cash for the fund, which owns the CEZinc smelter in Quebec. The company later increased its offer to $3.90 a unit or $146.3 million, a premium of 53 per cent to the closing price of the units on the day before the original offer was made.
However, the independent committee of Noranda directors turned down the revised offer after "taking into account recent market trading activity in the fund's priority units," Xstrata said.
Since July 29, the day before the proposal was announced, Noranda's units have gained almost 34 per cent on the Toronto Stock Exchange. On Wednesday, they lost 13 cents or 3.1 per cent to $4.10.
Xstrata said it has determined that the two companies are unlikely to reach an agreement and has notified Noranda that it doesn't intend to proceed with the proposal.
"Our proposal was based on our ability to consolidate the CEZinc refinery into Xstrata Zinc's global operations to secure its long-term future and on our considered view, as the operators and managers of the asset, of its prospects on a standalone basis," stated Xstrata Zinc CEO Santiago Zaldumbide.
He pointed out that Noranda will lose its tax-free status as an income trust as government reforms take effect on Jan. 1 and is facing a debt refinancing of $193 million. CEZinc, located in Salaberry-de-Valleyfield in southwestern Quebec, also faces competition from low-cost Chinese processing capacity and could suffer from rising zinc concentrate prices.
"In the light of these uncertainties, Xstrata's proposal would have provided unitholders with the certainty of cash," Zaldumbide said.
Currently, Xstrata owns 25 per cent of Noranda, manages CEZinc and supplies the smelter with zinc concentrate through a contract that will expire in 2017.
Xstrata announced in July it would proceed with development of a new mine in Quebec to supply zinc concentrate to the smelter.
