Pan-American shareholders give cool early reception to US$2.1-billion deal to buy MAG Silver
Vancouver-based MAG's biggest asset is its 44-per-cent share in the Juanicipio silver mine in Mexico, which is majority owned and operated by British company Fresnillo PLC.
Pan American, also based in Vancouver, has a portfolio of 10 silver and gold mines in seven countries. The company expanded its footprint considerably a few years ago when it bought a suite of South American mines from Yamana Gold Inc.
For each MAG share held, investors can choose between receiving US$20.54 in cash, 0.755 common shares of Pan American, or a combination of both. The maximum amount of cash that Pan American will pay out in the deal is US$500-million with the balance to be paid in stock.
Pan American's takeover, announced on Monday, is 21-per-cent above MAG's Friday closing price.
Michael Siperco, analyst with RBC Dominion Securities who covers Pan American, in a note to clients gave the deal a mixed review, calling it 'a solid portfolio upgrade,' but one that comes with a price.
While the transaction adds significantly to the company's near-term silver production, it will be dilutive on several metrics, including net asset value, earnings before interest, taxes, depreciation, and amortization, as well as free cash flow.
Pan American plans to issue roughly 60 million shares to MAG shareholders to pay for the deal.
Shares in Pan American were trading down by about 14 per cent in early trading on the Toronto Stock Exchange.
At least two thirds of votes cast by MAG shareholders in a shareholder meeting must be in favour for the deal to close.
The deal also needs regulatory clearance from Mexico under its antitrust laws.
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