TORONTO (CP) -- Norilsk Nickel's corporate structure and deep pockets mean it's better positioned to take out LionOre Mining International Ltd. [TSX:LIM] than its rival Xstrata PLC [LSE:XTA], which just upped the ante with a sweetened offer worth C$6.2 billion (US$5.6 billion), or C$25 per share, an analyst says.
''I think they can, at the end of the day, afford to pay more than Xstrata,'' said Orest Wowkodaw, of Canaccord Adams, noting Xstrata is bogged down with debt from its recent takeover of Canadian nickel giant Falconbridge.
''This is probably their knockout attempt here at C$25,'' Wowkodaw said of Xstrata.
The bump up is 35% more than its earlier bid of C$18.50 a share, or C$4.6 billion (US$4.2 billion), and Xstrata now has a leg up with a significant break fee of C$305 million (US$278 million) that Norilsk would have to eat if it returns to the fray.
''If Norilsk come back and trumps them with their own knockout bid, they walk away with $300 million,'' Wowkodaw said of Xstrata.
But Norilsk has an advantage in that the ownership structure, which is controlled by two Russian billionaires who own the majority of the shares in the publicly traded company, means the company doesn't have the same level of shareholder accountability as Xstrata, the world's fourth-largest nickel producer, Wowkodaw said.
''They're also minting money with these kinds of nickel prices, which I think puts them in a pretty strong position,'' said Wowkodaw, noting Norilsk is a pure nickel company, buoyed by record nickel prices, while Xstrata is diversified. ''So if they want the assets, they can pay whatever they want.''
The market seemed to agree. Shares in LionOre closed up 13.6% or C$3.22 to C$26.92 on the Toronto Stock Exchange Tuesday, above Xstrata's latest takeover bid, even as LionOre's board unanimously recommended that shareholders accept a sweetened offer worth $6.2 billion from Anglo-Swiss miner Xstrata PLC.
Russia's Norilsk Nickel has also been vying for the Toronto-based company with an offer of $21.50 a share, or $5.3 billion. LionOre deemed the Norilsk offer superior in late April, but kept the door open to a competing Xstrata bid until Monday.
Although the offers keep ratcheting up, Wowkodaw said the company's multiple, or price-earnings ratio, is still lower than those of Canadian nickel titans Inco and Falconbridge when they were taken out at last year.
Fraser Phillips, an analyst with RBC Dominion Securities, said LionOre's ''current earnings power could attract a higher bid from Norilsk.''
''Xstrata's revised bid is near the upper end of the range, however, a counter bid by Norilsk cannot be ruled out, in our opinion,'' Phillips wrote.
On Monday, the Canadian government approved Xstrata's takeover bid, which has also been given the green light by European regulators. The offer is set to expire on May 25.
LionOre produces nickel and gold in mines throughout Australia, South Africa and Botswana.
The company, which reports in U.S. dollars, said its first-quarter earnings fell to $148.3 million, or 61 cents per share, compared with $235.8 million, or 97 cents per diluted share last year.
Xstrata has mining operations in 18 countries around the world and employs about 43,000 people.
The big nickel producer is no stranger to Canada's mining industry. Last September it out bid Inco Ltd.[TSX:N] and Phelps Dodge Corp.[NYSE:FCX] to take over Canadian nickel titan Falconbridge Ltd. in a $24.8 billion deal.
(c) The Canadian Press 2007
